On January 1, 20X1, Piston, Inc. acquired Spur Corp. While recording the acquisition, Piston established a deferred tax liability. It is most likely that this account was created because
A)the transaction was a tax-free exchange to Piston.
B)Piston had not paid all of the income taxes due the government when acquiring Spur.
C)the transaction was a tax-free exchange to Spur.
D)Spur had not paid all of the income taxes due the government prior to the acquisition by Piston.

Question

Quizplus · Accepted Answer

A deferred tax liability results when the fair value of an asset may not be used in future depreciation calculations for tax purposes. This happens in a tax-free exchange to the seller.