Reference no: EM132976719

Problem 1: A company fraudulently inflates its receivables to boost reported revenues. However, it 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 receivables
b. Deferred tax liabilities will decrease because of inflated book receivables
c. Deferred tax liabilities will not be affected because of inflated book receivables
d. There is no clear relationship between inflated book receivables and deferred tax liabilities