On Its Tax Return at the End of the Current

question 107

Multiple Choice

On its tax return at the end of the current year Webnet Inc. has $6 million of tax depreciation in excess of depreciation in its income statement. A disclosure note reveals that $1 million of the $6 million difference will reverse itself next year, and the remainder will reverse over the next 4 years. In the absence of other temporary differences, in the balance sheet at the end of the current year Webnet would report:

• A) Both a current deferred tax asset and a noncurrent deferred tax asset.
• B) A noncurrent deferred tax asset.
• C) Both a current deferred tax liability and a noncurrent deferred tax liability.
• D) A noncurrent deferred tax liability.

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Definitions:

Swap Contract

A derivative contract through which two parties exchange financial instruments, typically involving cash flows based on a specified notional amount.

Specified Intervals

Pre-determined or agreed periods at which certain events or measurements take place.

Cash Flows

The total amount of money being transferred into and out of a business, especially as affecting liquidity.