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A healthcare company purchased a new MRI machine on 1/1/X3. At year-end the company recorded a...

A healthcare company purchased a new MRI machine on 1/1/X3. At year-end the company recorded a straight-line deprecation expense of $75,000 for book purposes and double-declining balance depreciation expense of $94,000 for tax purposes. Management estimates warranty expense in 20X3 to be $150,000. The company's tax rate is 37%. Assuming these are the only relevant entries for deferred taxes, the company's recorded change in deferred tax asset and liabilities on 12/31/X3 are closest

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Expert Solution

Since depreciation is higher for tax purpose; 94,000 - 75,000 = $ 19,000 will be a deferred tax liability

Warranty expense accrued will not be allowed as a deducted under tax unless sale occurs, so $ 150,000 will be a deferred tax asset

Net deferred tax asset = (150,000 - 19,000)* 37% = $ 48,470 will be treated as a deferred tax asset in books

ekkarill92 answered 2 years ago
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