Which of the following statements is true with respect to adjusting the deferred tax account on consolidation?
A)Deferred taxes only need to be adjusted for unrealized profits in inventory at the end of the year.
B)Deferred taxes only need to be adjusted for unrealized profits in inventory at the beginning of the year.
C)Deferred taxes need to be adjusted for unrealized profits in inventory at both the beginning and the end of the year.
D)Deferred taxes do not need to be adjusted for unrealized profits.

Question

Quizplus · Accepted Answer

Deferred taxes need to be adjusted for unrealized profits in inventory at both the beginning and the end of the year in order to account for the timing difference in recognizing income for tax purposes versus financial reporting purposes. This adjustment ensures that the consolidated financial statements accurately reflect the overall tax impact of the business combination.

Which of the Following Statements Is True with Respect to Adjusting