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Video of Deferred Tax Liability MCQ — Intermediate Accounting in Tax Accounting course by Farhat Lectures. The # 1 CPA & Accounting Courses channel, video No. 4 free certified online
This multiple-choice walkthrough shows a step-by-step calculation of a deferred tax liability (DTL) using a real-world question, essential for the CPA exam and intermediate accounting course. Designed for accounting students and CPA candidates, this Farhat Lectures tutorial helps you master the temporary differences between book and tax basis.
Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students.
Video Timeline & Key Concepts:
0:00 Multiple-choice question walkthrough on DTL
0:41 Comparing GAAP book basis vs. tax basis for equipment
1:03 Determining why the tax basis is lower due to depreciation
2:06 Calculating the deferred tax liability using the enacted tax rate
2:57 Resources for CPA and CMA exam preparation
Frequently Asked Questions:
Q: What causes a deferred tax liability (DTL) to arise in this example? A: A DTL arises due to a temporary difference between the book value (GAAP) and the tax basis (IRS) of an asset, such as equipment, where the book value is higher than the tax basis.
Q: Why would the tax basis of an equipment asset be lower than its book basis? A: This typically happens because the company took more depreciation for tax purposes than they did for financial reporting (GAAP), often due to government tax incentives or accelerated depreciation methods.
Q: How do you calculate the temporary difference between GAAP and tax basis? A: You subtract the tax basis from the book basis. In this video's example, the $500,000 book basis minus the $380,000 tax basis results in a $120,000 difference.
Q: How is the final deferred tax liability amount determined? A: The deferred tax liability is calculated by multiplying the temporary difference ($120,000) by the enacted tax rate (21%), which equals $25,200.
Q: What does a deferred tax liability represent for a company's future? A: It represents a future tax liability. Because the company took more deductions now, they will have fewer deductions in the future, leading to higher future tax payments relative to their GAAP income.
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