The financial reporting carrying amount of Johns-Hopper Company's only depreciable asset exceeded its tax basis by $750,000 at December 31, 2018. This was a result of differences between depreciation for financial reporting purposes and tax purposes. The asset was acquired earlier in the year. Johns-Hopper has no other temporary differences. The enacted tax rate is 30% for 2018 and 40% thereafter. Johns-Hopper should report the deferred tax effect of this difference in its December 31, 2018, balance sheet as:

Answer: Liability of $300,000

Explanation:

In the question above, what we have is a deferred tax liability, which could be explained as the amount accrued in taxes at a present time but payable in the future. The tax rate will not be based in the present tax rate. Thus is why we will not be using the 30% tax tate of 2018 in calculating the tax amount.

Tax rate = 40%

Exceeded tax basis = $750,000

0.4 * 750,000 = $300,000

Therefore, Johns-Hopper should report the deferred tax effect of this difference in its December 31, 2018, balance sheet as Liability of $300,000