Brown Co. purchased a piece of equipment at the beginning of Year 1 for $25,000,000. Management estimates that the equipment will have a useful life of seven years and a $5,000,000 salvage value. The depreciation expense recorded for tax purposes is computed using the double-declining balance method of depreciation. The company uses the straight-line method of depreciation for reporting purposes. Calculate the amount of depreciation expense for reporting purposes for Year 4 (i. e., the fourth full year of depreciation). Then calculate the amount of depreciation expense for tax purposes for Year 4 (i. e., the fourth full year of depreciation). Required:
Will a deferred tax asset or a deferred tax liability be created (in Year 4) as a result of the depreciation recorded for tax and financial reporting purposes?