Reference no: EM132976686

You are given the following information:

Beginning deferred tax liability = 0

Ending deferred tax liability = $30

Assume a tax rate of 25%.

Problem 1: Which one of the following best describes the effect of reversal of this liability in the future on the relationship between future financial reporting income and future taxable income? (Ignore complications such as permanent differences etc.)

a. Reversal of these temporary differences in the future will make future taxable income $120 more than future pre-tax book income.

b. Reversal of these temporary differences in the future will make future taxable income $120 less than future pre-tax book income.

c. Reversal of these temporary differences in the future will make future taxable income equal to future pre-tax book income.

d. Reversal of these temporary differences in the future will make future taxable income $30 more than future pre-tax book income.

e. Reversal of these temporary differences in the future will make future taxable income $30 less than future pre-tax book income.