Infinity Production Acquired a New Machine at the Beginning of the Current

question 102

Multiple Choice

Infinity Production acquired a new machine at the beginning of the current year. The machine cost $840,000 with no residual value expected. Infinity uses the straight-line method for financial reporting, assuming a 6-year useful life. The firm classifies the equipment as 5-year MACRS property for tax purposes using the following percentages. $\begin{array}{ll}\text { Year } & \text { MACRS }(\%) \\1 & 20.00 \% \\2 & 32.00 \\3 & 19.20 \\4 & 11.52 \\5 & 11.52 \\6 & 5.76\end{array}$


The company is subject to a 20% income tax rate and has no other book-tax differences. Income before depreciation and tax is presented below:
$\begin{array}{cc}& \text { Income before}\\& \text { Taxand}\\\text { Year } & \text { Depreciation } \\\hline 1 & \$ 450,000 \\2 & 500,000 \\3 & 570,000 \\4 & 700,000 \\5 & 820,000 \\6 & 950,000\end{array}$
What is Infinity's deferred tax asset or deferred tax liability at the end of year 1?

• A) $5,600 deferred tax liability
• B) $28,000 deferred tax liability
• C) $672,000 deferred tax asset
• D) $28,000 deferred tax asset

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Definitions:

Uncertainty Forms

Refers to the different ways uncertainty manifests in a business environment, such as demand, supply, price, and lead time uncertainties.

Net Present Value

A financial metric that calculates the value of a series of future cash flows in today's dollars, factoring in both the time value of money and the risk of those cash flows.

Lease Cost

Lease cost refers to the expense incurred by leasing property or equipment, including monthly payments, maintenance, taxes, and other associated fees.

Rate of Return

The increase or decrease in value of an investment during a particular time frame, represented as a percent of the investment's initial cost.