[APPENDIX] on January 1,2010,Roxie Company Purchased an Asset for $137,500

question 16

Essay

[APPENDIX] On January 1,2010,Roxie Company purchased an asset for $137,500.For financial accounting purposes,the asset will be depreciated on a straight-line basis over five years with no residual value at the end of that time.For tax purposes,the asset will be depreciated as follows: 2010,$45,000;2011,$35,000;2012,$25,000;2013,$20,000;and 2014,$12,500.Assume that the company is subject to a 35% tax rate.
REQUIRED:
1.What is the amount of deferred tax at December 31,2010?
2.Does the deferred tax represent an asset or a liability?
3.What is the amount of deferred tax at December 31,2014?

---

Definitions:

Depreciation

The gradual reduction of the recorded cost of a fixed asset over its useful life, reflecting the asset's wear and tear, obsolescence, or decline in value.

NDP

Net Domestic Product (NDP) refers to the total value of all goods and services produced within a country in a specific time period, minus the total value of the goods and services used up in production.

GDP Deflator

An indicator of the price levels for all newly produced domestic final goods and services within an economy, utilized for transforming nominal GDP into real GDP.

Inflation

A universal surge in prices and a dip in the value of monetary assets.