Tissues Ltd Has a Depreciable Asset That Is Estimated for Accounting

question 10

Multiple Choice

Tissues Ltd has a depreciable asset that is estimated for accounting purposes to have a useful life of 8 years.For taxation purposes the useful life is 5 years.The asset was purchased at the beginning of year 1,there is no residual value,and the straight-line method of depreciation is used for both tax and accounting purposes.The tax rate is 30 per cent and the cost of the asset is $100,000.What is the amount of the deferred tax liability account generated by this asset at the end of years 1,2 and 3?

• A) End of year 1: $0; Year 2: $2,250; Year 3: $4,500
• B) End of year 1: $7,500; Year 2: $15,000; Year 3: $22,500
• C) End of year 1: $6,750; Year 2: $4,500; Year 3: $2,250
• D) End of year 1: $2,250; Year 2: $4,500; Year 3: $6,750
• E) None of the given answers.