Explain the impact of fraud on the deferred tax liabilities

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Problem 1: A company fraudulently lowers its book depreciation to inflate income. This also inflates reported net PP&E. However, the company is truthful on its tax return. Which one of the following best describes the impact of this fraud on the deferred tax liabilities? Assume that the tax rate is NOT ZERO.

a. Deferred tax liabilities will increase because of inflated book net PP&E

b. Deferred tax liabilities will decrease because of inflated book net PP&E

c. Deferred tax liabilities will not be affected because of inflated book net PP&E

d. There is no clear relationship between inflated book net PP&E and deferred tax liabilities

Reference no: EM132976726

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