Which of the following most likely creates a deferred tax liability? (2024)

Which of the following most likely creates a deferred tax liability?

A deferred tax liability usually occurs when standard company accounting rules differ from the accounting methods used by the government. The depreciation of fixed assets is a common example. Companies typically report depreciation in their financial statements with a straight-line depreciation method.

What is a deferred tax liability quizlet?

A deferred tax liability is the increase in future taxes payable due to temporary taxable differences. decrease in taxes payable in future years as a result of deductible temporary differences.

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What does a liability for deferred income taxes represent?

Deferred tax liability

Fundamentally, deferred tax balances represent the future tax impacts of recovering or otherwise consuming assets (e.g., by depreciating the asset) and settling liabilities (e.g., by cash settlement of the obligations) at the respective book values.

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What companies have the largest deferred tax liabilities?

AT&T (T) and Verizon (VZ) have the largest DTLs by dollar value. Comcast (CMCSA), in third, is classified as consumer cyclicals but invests heavily in telecom infrastructure. Verizon has already announced a one-time gain of $16.8 billion on the remeasurement of its DTLs, while Comcast recorded a $12.7 billion gain.

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Is deferred tax liability positive or negative?

If the temporary difference is positive, a deferred tax liability will arise. If the temporary difference is negative, a deferred tax asset will arise.

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Which of the following creates deferred tax liability?

A deferred tax liability, or “DTL”, is created when the income tax expense recorded on a company's income statement prepared under GAAP accounting standards is different from the actual amount paid to the Internal Revenue Service (IRS).

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What is a common deferred tax liability?

Common Situations

One common situation that gives rise to deferred tax liability is depreciation of fixed assets. Tax laws allow for the modified accelerated cost recovery system (MACRS) depreciation method, while most companies use the straight-line depreciation method for financial reporting.

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Which of the following creates a deferred tax asset?

A deferred tax asset is often created when taxes are paid or carried forward but cannot yet be recognized on the company's income statement.

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What is an example of a deferred tax?

Firstly, deferred tax can be recorded when taxes on income vary from the amount of taxes a company has already paid. For example, if income tax for one year was calculated at Rs. 1,000, but the actual taxes paid was Rs. 800, deferred tax of Rs.

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What does a deferred tax asset represent quizlet?

A deferred tax asset represents the: increase in taxes saved in future years as a result of deductible temporary differences.

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What is the difference between a tax liability and a deferred tax liability?

A deferred tax asset is a business tax credit for future taxes, and a deferred tax liability means the business has a tax debt that will need to be paid in the future. You can think of it as paying part of your taxes in advance (deferred tax asset) or paying additional taxes at a future date (deferred tax liability).

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What is the double entry for a deferred tax asset?

Debit or Credit: As per the double-entry system, for every debit, there must be a corresponding credit. Here, the DTA is debited, and Income Tax Expense is credited.

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What is the most common type of tax deferred account?

Types of Tax-Deferred Accounts

The most common tax-deferred retirement accounts in the United States are traditional IRAs and 401(k) plans.

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How do you calculate deferred tax liability?

How Deferred Tax Liability Works. It is calculated as the company's anticipated tax rate times the difference between its taxable income and accounting earnings before taxes. Deferred tax liability is the amount of taxes a company has "underpaid" which will be made up in the future.

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Where does deferred tax liability go on a balance sheet?

Accordingly, in a single balance sheet, deferred taxes may appear under two different classifications: noncurrent asset and noncurrent liability.

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Can a deferred tax liability be negative?

If the Total Deferred Tax is positive (greater than or equal to zero), then all temporary difference accounts are classified as Noncurrent Assets. If the Total Deferred Tax amount is negative (less than zero), each temporary difference account is classified as a Noncurrent Liability.

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How are deferred tax assets and liabilities created?

As per AS 22, deferred tax assets and liability arise due to the difference between book income & taxable income and do not rise on account of tax expense itself.

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How do you record deferred tax assets and liabilities?

A deferred tax asset would be recorded in acquisition accounting because the liability, when settled, will result in a future tax deduction. That is, a deferred tax asset is recognized at the acquisition date since there is a basis difference between book and tax related to the liability.

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What is deferred tax expense?

Amount allocated during the period to cover tax liabilities that have not yet been paid.

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What is a deferred tax asset and what is its purpose?

Deferred tax assets are items that may be used for tax relief purposes in the future. Usually, it means that your business has overpaid tax or has paid tax in advance, so it can expect to recoup that money later. This sometimes happens because of changes in tax rules that occur in the middle of the tax year.

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What are deferred tax assets recognized for?

Deferred tax assets are also recognised for the carry forward of unused tax losses and credits. As with all deferred tax assets, their recognition is subject to the expected availability of taxable profits in the future.

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How do deferred tax assets and deferred tax liabilities represent the tax effect?

Deferred tax assets and liabilities represent the future effects on income taxes that result from temporary differences and carryforwards that exist at the end of a period.

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What is an example of a deferred tax asset with depreciation?

For example, a company uses 12% depreciation rate for their books and 15% rate for their tax purposes. It creates a difference in the final amount and generates a deferred tax asset for companies. This difference in tax payment will show a DTA of Rs. 600 in the balance sheet.

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Why would deferred tax assets decrease?

The Deferred Tax Asset decreases when the company uses NOLs, and it increases when the company accumulates NOLs due to negative Pre-Tax Income. If the DTA decreases, the company's cash flow increases because it's using the NOL to reduce its taxes; if the DTA increases, cash flow decreases.

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What are deferred expenses in accounting?

Deferred expenses, similar to prepaid expenses, refer to expenses that have been paid but not yet incurred by the business.

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Which of the following most likely creates a deferred tax liability? (2024)