Recording and Reporting Deferred Income Tax: Depreciation (Supplement B) Mansfield Corporation purchased a new warehouse at the beginning of 2011 for $1,000,000. The expected life of the asset is 20 years with no residual value. The company uses straight line depreciation for financial reporting purposes and accelerated depreciation for tax purposes (assume 10 percent of original cost for this problem). The company’s marginal federal income tax rate is 34 percent. The company determined its income tax obligation was as follows: 2011, $400,000; 2012, $625,000.
1. Compute the deferred income tax amount reported on the balance sheet for each year. Is the deferred income tax a liability or an asset? Explain.
2. Compute income tax expense for each year.