Chapter 18, Problem 4MC

Prior to and during 2019, Shadrach Company reported tax depreciation at an amount higher than the amount of financial depreciation, resulting in a book value of the depreciable assets of $24,500 for financial reporting purposes and of $20,000 for tax purposes at the end of 2019. In addition, Shadrach recognized a $3,500 estimated liability for legal expenses in the financial statements during 2019; it expects to pay this liability (and deduct it for tax purposes) in 2023. The current tax rate is 30%, no change in the tax rate has been enacted, and the company expects to be profitable in future years. What is the amount of the net deferred tax liability at the end of 2019?

1. a. $300
2. b. $450
3. c. $1,050
4. d. $1,350