Series 79 practice questionhardDeferred Tax Asset/Liability
A company recognizes a deferred tax asset on its balance sheet most likely because:
- AIt has understated its revenue for financial reporting purposes
- BIt anticipates paying more tax in the future than recognized on the current financials
- CIt has overpaid taxes or paid taxes in advance
- DIt has recognized more expenses for tax than for accounting purposes✓ Correct answer
Explanation
Why D — It has recognized more expenses for tax than for accounting purposes
A deferred tax asset arises when a company recognizes more expenses for tax purposes than for accounting, causing taxable income to be lower now and higher later. Overstated revenue or prepayments don't create this situation.
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