What is the amount of the Deferred Tax Asset or Liability on December 31, 2016?
A) a Deferred Tax Liability of $1,500
B) a Deferred Tax Liability of $375
C) a Deferred Tax Asset of $375
D)a Deferred Tax Asset of $1,500

Question

Quizplus · Accepted Answer

The formula to calculate Deferred Tax Asset/Liability is (Tax Rate x Temporary Difference). Here, we can see that there is a temporary difference of $1,500 ($5,000 - $3,500) between the book and tax values of the asset. Since the tax rate is 25%, the Deferred Tax Liability will be (0.25 x $1,500) = $375.

What Is the Amount of the Deferred Tax Asset or Liability