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Question: Fresno Transportation owns a fleet of 50 semi-trucks.

18 Feb 2023,2:38 PM


Fresno Transportation owns a fleet of 50 semi-trucks. The original cost of the fleet was $7,500,000. Fresno uses straight-line depreciation for the fleet for accounting purposes, and MACRS depreciation for tax purposes. The company had a deferred tax liability balance of $220,000 at the end of fiscal year 2020 related to the fleet. At the end of fiscal year 2021, the GAAP book value of the fleet was $6,230,000, while the tax book value was $5,610,000. Fresno’s taxable income for fiscal year 2021 was $6,400,000. Its tax rate was 40%. Requirements 1. Calculate the deferred tax liability related to the fleet as of the end of fiscal year 2021. 2. Record the tax accrual for 2021 as of the end of fiscal year 2021.

Expert answer


The deferred tax obligation linked to the fleet at the conclusion of the 2021 fiscal year is calculated as follows:

Deferred Tax Liability = (Tax Book Value - Book Value) x Tax Rate

Fresno Transportation possesses a group of 50 semi-trucks that were initially purchased for $7,500,000. The company utilizes straight-line depreciation to calculate its book value for accounting purposes and MACRS depreciation to determine its tax value. The firm had a deferred tax obligation of $220,000 linked to the fleet at the close of the 2020 fiscal year.


As of the close of the 2021 fiscal year, the GAAP book value of the fleet was $6,230,000, while the tax book value was $5,610,000. Fresno had a taxable income of $6,400,000 during the 2021 fiscal year, with a tax rate of 40%.


The deferred tax obligation linked to the fleet at the conclusion of the 2021 fiscal year is calculated as follows:

Deferred Tax Liability = (Tax Book Value - Book Value) x Tax Rate

= ($5,610,000 - $6,230,000) x 40%

= -$248,000 (negative sign indicates a deferred tax liability)


Therefore, the deferred tax liability related to the fleet as of the end of fiscal year 2021 is $248,000.


The tax accrual for the 2021 fiscal year as of the end of the year is:

Tax Accrual = Taxable Income x Tax Rate - Deferred Tax Liability

= $6,400,000 x 40% - (-$248,000)

= $2,576,000 + $248,000

= $2,824,000


Hence, the tax accrual for the 2021 fiscal year as of the end of the year is $2,824,000.

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