Spring Day Ltd Has a Piece of Equipment That It

question 91

Multiple Choice

Spring Day Ltd has a piece of equipment that it has revalued to its fair value of $90 000 this period.It originally cost $80 000 and the accumulated depreciation for both accounting and tax purposes is $20 000.There is no intention to sell the equipment in the near future.The tax rate is 30%.What is the journal entry to reflect the revaluation's tax implications?

• A) \(\begin{array}{|l|l|r|r|}
• \hline \mathrm{Dr} & \text { Income tax expense } & \$ 9000 & \\
• \hline \mathrm{Cr} & \text { Deferred tax liability } & & \$ 9000 \\
• \hline
• \end{array}\)
• B) \(\begin{array}{|l|l|r|r|}
• \hline \mathrm{Dr} & \text { Asset revaluation reserve } & \$ 9000 & \\
• \hline \mathrm{Cr} & \text { Deferred tax liability } & & \$ 9000 \\
• \hline
• \end{array}\)
• C) \(\begin{array}{|l|l|r|r|}
• \hline \mathrm{Dr} & \text { Deferred tax asset } & \$ 9000 & \\
• \hline \mathrm{Cr} & \text { Asset revaluation reserve } & & \$ 9000 \\
• \hline
• \end{array}\)
• D) \(\begin{array}{|l|l|r|r|}
• \hline \mathrm{Dr} & \text { Income tax expense } & \$ 3000 & \\
• \hline \mathrm{Cr} & \text { Deferred tax liability } & & \$ 3000 \\
• \hline
• \end{array}\)

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