Spring Day Ltd Has a Piece of Equipment That It

question 27

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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Definitions:

Decrease Retailer Prices

The activity of reducing the cost at which goods or services are sold by retail outlets to the consumer market.

Vertical Contracts

Agreements between firms at different levels of the supply chain, such as between a manufacturer and a retailer, aimed at controlling the conditions of sale or establishing terms of collaboration.

Consumers

Individuals or organizations that use economic services or goods, playing a central role in economic systems as the end-users of products.

Promotional Activities

Marketing efforts aimed at increasing awareness, sales, and interest in a product or service through various strategies and channels.