Deck 18: Accounting for Income Taxes

Question 1

The value of deferred tax assets and liabilities should be measured using the enacted tax rates that will be in existence when the temporary differences reverse.

Answer 1

True

Question 2

A deferred tax asset arises when current taxable income is greater than pretax financial income.

Answer 2

True

Question 3

A corporation's deferred tax expense or benefit is the change in its deferred tax liabilities or assets during the year.

Answer 3

True

Question 4

A temporary difference will result in a deferred tax liability when future taxable income will be less than future pretax financial income.

Question 5

A company determines whether to recognize an uncertain tax position by evaluating whether the tax position will
"more likely than not" be upheld during a tax audit by the IRS, based on the technical merits of the position.

Question 6

Permanent differences arise due to timing differences between the corporation's pretax financial income and taxable income.

Question 7

If a corporation recognizes an operating loss carryforward in the year of the loss, the corporation will deduct the tax benefit from its operating loss.

Question 8

The value of deferred tax assets and liabilities should be measured using the enacted tax rates that will be in existence when the temporary differences initially occur.

Question 9

Combining the net deferred tax asset and liability amounts in the noncurrent group is one of the few situations in which GAAP allow offsetting assets and liabilities.

Question 10

An operating loss must be carried back two years, starting with the earliest of the two years, before it can be carried forward.

Question 11

Temporary differences cause a company's effective tax rate to be different from the enacted tax rate.

Question 12

Under IFRS ,valuation allowances for deferred tax assets are not recorded.

Question 13

A corporation must report its deferred tax liabilities and assets in two classifications: gross current amounts and gross noncurrent amounts.

Question 14

A corporation must recognize a valuation allowance if, based on available evidence, it is more likely than not that a deferred liability will not be realized.

Question 15

The intraperiod tax allocation involves separation of the income taxes on income from continuing operations from income taxes on discontinued operations and other comprehensive income.

Question 16

When Congress makes a tax law or rate change, a corporation recognizes financial statement impact by adjusting the deferred assets or liabilities as of the beginning of the year in which the change is made.

Question 17

Deductions that are allowed for income tax purposes but do not qualify as expenses under GAAP are permanent differences.

Question 18

The amount of income tax expense as determined by GAAP differs from amount determined under the Internal
Revenue Code due to measurement and timing.

Question 19

GAAP require intraperiod income tax allocation to income or loss as they relate to discontinued operations and other comprehensive income but not to retrospective adjustments or prior period adjustments.

Question 20

Using accelerated depreciation for tax purposes and straight-line method for book purposes results in a deferred tax asset.

Question 21

Bourne Company received rent in advance of $9,000 on December 31, 2016, which was taxable when received for income tax purposes. The company's effective tax rate was 30%, and this was the only temporary difference. Which of the following should be reported on the December 31, 2016 balance sheet?

A) $9,000 as a current deferred tax liability
B) $2,700 as a current deferred tax liability
C) $2,700 as a current deferred tax asset
D) $9,000 as a current deferred tax asset

Question 22

Exhibit 18-1
On December 31, 2015, Fredericksburg, Inc. had no temporary differences that created deferred income taxes. On January 2, 2016, a new machine was purchased for $30,000. Straight-line depreciation over a four-year life no residual value) was used for financial accounting. Depreciation expense for tax purposes was $11,000 in 2016,
$9,000 in 2017, $6,000 in 2018, and $4,000 in 2015. In each year, the income tax rate was 20% and Fredericksburg had no other items that created differences between pretax financial income and taxable income. Fredericksburg reported the following pretax financial income for 2016 through 2019:
Refer to Exhibit 18-1. The entry to record income taxes on December 31, 2018, would include a

A) debit to Deferred Tax Asset for $300.
B) credit to Income Taxes Payable for $7,700.
C) debit to Income Tax Expense for $8,000.
D) debit to Deferred Tax Liability for $300.

Question 23

Differences between pretax financial accounting and taxable income that are expected to reverse in one or more future accounting periods are called

A) temporary differences.
B) permanent differences.
C) material differences.
D) partial differences.

Question 24

A deferred tax asset would result if

A) a company recorded a tax penalty in 2016 that it paid in 2017.
B) a company recorded more taxable depreciation in 2016 for an asset acquired in 2008.
C) a company recorded more warranty expense in 2016 than cash paid in 2016 for warranty repairs.
D) a company recorded more interest revenue in 2016 than cash received in 2016 for interest.

Question 25

When Congress changes the tax laws or rates, a corporation's deferred tax liability and asset accounts

A) are not adjusted.
B) are adjusted as of the end of the year in which the change occurred.
C) are adjusted as of the beginning of the year in which the change occurred.
D) are adjusted using the average of the old and new tax rates.

Question 26

In 2016, its first year of operations, Wilber Company reported pretax accounting income of $60,000. Included in the $60,000 was an expense for accrued, unpaid warranty costs of $8,000, which are not deductible until paid for income tax purposes. Wilber's income tax rate was 20%. The entry to record the income tax expense would include a

A) credit to Income Tax Expense for $12,000.
B) credit to Income Taxes Payable for $12,000.
C) credit to Deferred Tax Liability for $1,600.
D) debit to Deferred Tax Asset for $1,600.

Question 27

Lewes Company appropriately uses the installment sales method for tax purposes and the accrual method for revenue recognition for accounting purposes. Pertinent data at December 31, 2016, the close of the first year of operations, are as follows:
Lewes's tax rate is 30%. What amount should be included in the deferred tax account at December 31, 2016 for these installment sales?

A) $150,000 deferred tax asset
B) $150,000 deferred tax liability
C) $500,000 deferred tax asset
D) $500,000 deferred tax liability

Question 28

Pruett Corporation began operations in 2015 and appropriately recorded a deferred tax liability at the end of 2015 and 2016 based on the following depreciation temporary differences between pretax financial income and taxable income: The income tax rate for 2015 and 2016 was 30%. In February 2017, due to budget constraints, Congress enacted an income tax rate of 35%. What is the journal entry required to adjust the Deferred Tax Liability account in February 2017?

Question 29

Which of the following transactions would typically result in the creation of a deferred tax liability?

A) Rents received in advance are taxable when received but are not recognized in pretax financial income until earned.
B) Gross profit on installment sales is recognized currently in pretax financial income but is not taxable for income tax purposes until cash is received.
C) Losses recognized in pretax accounting income from an investment in a subsidiary are accounted for by the equity method but not deductible for income tax purposes until the investment is sold.
D) A contingent liability is recognized as an expense currently in pretax financial income but not deductible for income tax purposes until paid.

Question 30

During its first year of operations, 2016, the Cocoa Company reported both a pretax financial and a taxable loss of $300,000. The income tax rate is 30% for the current and future years. Due to a sufficient backlog of sales orders, Cocoa did not establish a valuation allowance to reduce the $90,000 deferred tax asset. However, early in 2017, one major customer, representing 60% of the 2017 year-end sales backlog, went bankrupt. Cocoa now believes that it is more likely than not that 75% of the deferred tax asset will not be realized. The entry to record the valuation allowance would be

Question 31

Each of the following can result in a temporary difference between pretax financial income and taxable income except

A) depreciation expense.
B) product warranty costs.
C) percentage depletion in excess of cost depletion on wasting assets.
D) contingent liabilities.

Question 32

What three groups are measuring and timing differences categorized?

A) temporary, permanent, operating income carrybacks and carryforwards
B) temporary, permanent, extraordinary loss carrybacks and carryforwards
C) temporary, permanent, operating loss carrybacks and carryforwards
D) temporary, permanent, operating gains carrybacks and carryforwards

Question 33

Differences between pretax financial income and taxable income in an accounting period that will not reverse in a later accounting period are called

A) temporary differences.
B) permanent differences.
C) nondeductible temporary differences.
D) deferred tax consequences.

Question 34

Which of the following statements regarding current and deferred income taxes is not correct?

A) The amount of income tax expense must be allocated to various components of comprehensive income.
B) The income tax obligation is determined by applying the historical tax rates to the taxable income for the year.
C) The valuation allowance account is subtracted from the deferred tax asset account on the balance sheet.
D) Rent received in advance that will be earned within the next 12 months results in the creation of a current deferred tax asset.

Question 35

In 2016, Waterford Corporation reported pretax financial income of $400,000. Included in that pretax financial income was $150,000 of nontaxable life insurance proceeds received as a result of the death of an officer; $120,000 of warranty expenses accrued but unpaid as of December 31, 2016; and $10,000 of bad debts estimated to be uncollectible but not written off as of December 31, 2016). Assuming that no income taxes were previously paid during the year and an income tax rate of 30%, what is the amount of income taxes payable on December 31, 2016?

A) $ 42,000
B) $108,000
C) $114,000
D) $126,000

Question 36

For the year ended December 31, 2016, the Bowling Green Company reported income of $350,000 before provision for income tax. In arriving at taxable income for income tax purposes, the following differences were identified: Bad debt expense but not written off) $ 8,000
Depreciation deducted for tax purposes in excess of
Depreciation for accounting purposes 50,000
Income for installment sales reportable for income tax purposes in excess of income reported for financial
Reporting purposes 30,000
Assuming a corporate income tax rate of 30%, Huntsville's current income tax liability as of December 31, 2016, is

A) $ 83,400.
B) $101,400.
C) $113,400.
D) $129,000.

Question 37

The amount owed the IRS is recorded in the accounting records in which account?

A) Income Tax Expense
B) Income Tax Liability
C) Deferred Tax Expense
D) Deferred Tax Liability

Question 38

Exhibit 18-1
On December 31, 2015, Fredericksburg, Inc. had no temporary differences that created deferred income taxes. On January 2, 2016, a new machine was purchased for $30,000. Straight-line depreciation over a four-year life no residual value) was used for financial accounting. Depreciation expense for tax purposes was $11,000 in 2016,
$9,000 in 2017, $6,000 in 2018, and $4,000 in 2015. In each year, the income tax rate was 20% and Fredericksburg had no other items that created differences between pretax financial income and taxable income. Fredericksburg reported the following pretax financial income for 2016 through 2019:
Refer to Exhibit 18-1. The entry to record income taxes on December 31, 2017, would include a

A) debit to Deferred Tax Liability for $300.
B) credit to Income Taxes Payable for $8,000.
C) debit to Income Tax Expense for $7,700.
D) credit to Deferred Tax Liability for $300.

Question 39

Which of the following is not a timing difference that would cause pretax financial accounting income to differ from taxable income?

A) Investment revenue is recognized under the equity method for financial reporting purposes but in a later period as dividends are received for income tax purposes.
B) Life insurance proceeds are received by a corporation upon the death of an insured employee of the corporation.
C) Rent received in advance is taxable when received but is not reported as revenue for financial reporting purposes until the service has actually been provided.
D) MACRS depreciation is used for income tax purposes, and straight-line depreciation is used for financial reporting purposes.

Question 40

As of December 31, 2016, the Williamsburg Company reported a deferred tax asset of $60,000 related to accrued, unpaid warranty costs. However, since profits have been declining, Williamsburg decides that it is more likely than not that $24,000 of the deferred tax asset will not be realized. The entry to record the valuation allowance would include a

A) debit to Income Tax Expense for $60,000.
B) credit to Income Tax Expense for $24,000.
C) debit to Allowance to Reduce Deferred Tax Asset to Realizable Value for $24,000.
D) credit to Allowance to Reduce Deferred Tax Asset to Realizable Value for $24,000.

Question 41

The Flintstone Company incurred the following expenses in 2016, which are reported differently for financial reporting purposes and taxable income: If the tax rate is 40%, what is the total temporary difference?

A) $20,000
B) $28,000
C) $70,000
D) $150,000

Question 42

In accounting for income taxes, percentage depletion in excess of cost depletion is an example of

A) intraperiod income tax allocation.
B) a temporary difference.
C) interperiod income tax allocation.
D) a permanent difference.

Question 43

Revenue from installment sales is recognized in the period received for tax purposes and recognized in the period earned for accounting purposes. If these periods are different, this is an example of a

A) permanent difference that gives rise to interperiod tax allocation.
B) permanent difference that does not give rise to interperiod tax allocation.
C) temporary difference that gives rise to interperiod tax allocation.
D) temporary difference that does not give rise to interperiod tax allocation.

Question 44

Interperiod tax allocation is required for all of the following situations except

A) warranty expenses that are expensed in the year of sale for accounting purposes but are deductible in the year of payment for tax purposes.
B) percentage depletion that exceeds cost depletion for the current period.
C) MACRS depreciation for tax purposes and straight-line method for accounting purposes.
D) installment sales method for tax purposes and accrual method for accounting purposes.

Question 45

All of the following involve a temporary difference for purposes of income tax allocation except

A) interest on municipal bonds.
B) gross profit on installment sales for tax purposes.
C) MACRS depreciation for tax purposes and straight-line for accounting purposes.
D) product warranty expenses.

Question 46

Which of the following would not result in a permanent difference between pretax financial income and taxable income?

A) Product warranty costs
B) Premiums paid for life insurance policies on officers of the company
C) Interest revenue received from investments in municipal bonds
D) Percentage depletion in excess of cost depletion on wasting assets

Question 47

Which one of the following requires interperiod tax allocation?

A) Premium paid on key executives' life insurance
B) Warranty expenses related to a three-year warranty period
C) Interest received on municipal obligations
D) Percentage depletion in excess of cost depletion

Question 48

Permanent differences impact

A) current deferred taxes.
B) current tax liabilities.
C) deferred tax assets.
D) deferred tax liabilities.

Question 49

Permanent differences between pretax financial income and taxable income result when

A) a company engages in fraudulent activity.
B) the SEC imposes a penalty on a company.
C) the IRS imposes interest on a late payment.
D) the U.S. Patent Office denies a patent application.

Question 50

During its first year of operations ending on December 31, 2016, the Dakota Company reported pretax accounting income of $600,000. The only difference between taxable income and accounting income was $80,000 of accrued warranty costs. These warranty costs are expected to be paid as follows: Assuming an income tax rate of 30% in 2016, what amount of income tax expense should Dakota report on its 2016 income statement?

A) $175,000
B) $180,000
C) $185,000
D) $204,000

Question 51

All of the following involve a temporary difference for purposes of income tax allocation except

A) revenues or gains that are included in pretax financial income prior to the time they are included in taxable income.
B) expenses or losses that are deducted to compute taxable income prior to the time they are deducted to compute pretax financial income.
C) revenues or gains that are included in taxable income prior to the time they are included in pretax financial income.
D) deductions that are allowed for income tax purposes but that do not qualify as expenses under generally accepted accounting principles.

Question 52

On January 1, 2016, Bedrock Company began recognizing revenues from all sales under the accrual method for financial reporting purposes and under the installment sales method for income tax purposes. Bedrock reported the following gross margin on sales for 2016 and 2017: The enacted tax rate for both 2016 and 2017 was 30%. Assuming there are no other temporary differences, 2017 what is the amount of deferred tax liability that Bedrock should report on its December 31, 2017 balance sheet?

A) $60,000
B) $120,000
C) $180,000
D) $450,000

Question 53

Which one of the following statements regarding operating losses is false?

A) The tax benefit of an operating loss carryback is recognized in the period of loss as a current receivable on the balance sheet.
B) Temporary differences and operating loss carryforwards are accounted for similarly.
C) The journal entry to recognize an operating loss carryback would include a credit to Income Tax Benefit from Operating Loss Carryback.
D) The tax benefit of an operating loss carryforward is to be recognized in the period of loss as a current receivable.

Question 54

Interperiod income tax allocation is based on the assumption that

A) permanent differences ultimately reverse and require interperiod tax allocation.
B) permanent differences do not have deferred tax consequences.
C) total income tax expense should be apportioned among numerous line items on the income statement.
D) the amount of income tax expense reported on the income statement should be the same as the income tax obligation on the corporation's income tax return.

Question 55

In 2016, the Puerto Rios Company received insurance proceeds of $300,000 payable upon the death of its previous top executive officer. For financial reporting purposes, Puerto Rios included the $300,000 in pretax accounting income. The life insurance proceeds are exempt from income taxes. Assuming an income tax rate of 35%, what should Puerto Rios report for this event as deferred income taxes in the 2016 income statement of ?

A) $0
B) $105,000 deferred tax asset
C) $105,000 deferred tax liability
D) $195,000 deferred tax liability

Question 56

An operating loss carryforward occurs when

A) prior pretax financial income is insufficient to offset the current period operating loss.
B) prior taxable income is insufficient to offset the current period operating loss.
C) future pretax financial income is insufficient to offset a current period operating loss.
D) future taxable income is insufficient to offset a current period operating loss.

Question 57

Life insurance proceeds payable to a corporation upon the death of an insured employee are an example of

A) intraperiod tax allocation.
B) interperiod tax allocation.
C) a permanent difference.
D) a temporary difference.

Question 58

In 2016, its first year of operations, Richmond Corporation reported pretax financial income of $80,000 for the year ended December 31. Richmond depreciates its fixed assets using an accelerated cost recovery method for tax purposes and straight-line depreciation for financial reporting. On assets acquired in 2016, the following are differences between depreciation on the tax return and accounting income during the asset's five-year life:
Assuming no other temporary or permanent differences, which of the following combinations of noncurrent deferred tax liabilitiy and income taxes payable would be included on Richmond's December 31, 2016 balance sheet?

A) I
B) II
C) III
D) IV

Question 59

The Pink Diamonds Company installs fire alarm systems for large manufacturing enterprises and golf courses. Due to the design of their systems, some projects frequently extend over a two-year period. Pink Diamonds uses the percentage-of-completion method for financial accounting purposes and the completed-contract method for tax purposes. As of December 31, 2016, all projects were completed. The following information relates to projects started but not completed as of December 31, 2017:
Assuming an income tax rate of 30%, what amount should be included in the deferred tax liability account at December 31, 2017?

A) $70,000
B) $90,000
C) $105,000
D) $350,000

Question 60

Shane Company uses an accelerated depreciation method for income tax purposes and the straight-line depreciation method for financial reporting purposes. As of December 31, 2016, Shane has a deferred tax liability balance related to depreciation temporary differences of $80,000. In 2017, depreciation for income tax purposes was $360,000, while depreciation for financial reporting purposes was $300,000. If the income tax rate is 30%, no other temporary or permanent differences exist, and taxable income is $400,000,which of the following would be included in the entry to record income tax expense on December 31, 2017?

A) Debit to Income Tax Expense for $138,000
B) Credit to Income Taxes Payable for $138,000
C) Debit to Deferred Tax Asset for $120,000
D) Credit to Deferred Tax Liability for $120,000

Question 61

In applying intraperiod income tax allocation to discontinued operations, other comprehensive income, retrospective adjustments, and prior period adjustments, what tax rate should be used?

A) expected future income tax rate
B) average income tax rate
C) marginal incremental) income tax rate
D) normal income tax rate

Question 62

The Wyatt Company reports the following for both pretax financial and taxable income:
Wyatt uses the carryback provision for net operating losses when possible. Congress has enacted a tax rate for 2020 and future years of 40%. The entry on December 31, 2019, to record income tax expense would include a

A) debit to Income Tax Refund Receivable for $24,000.
B) debit to Income Tax Refund Receivable for $45,000.
C) credit to Income Tax Benefit from Operating Losses for $45,000.
D) credit to Income Tax Expense for $45,000.

Question 63

When accounting for the current impact of loss carrybacks and carryforwards it is proper to recognize

A) recognize the tax benefit of the operating loss carryback and carryforward as an asset.
B) recognize the tax benefit of the operating loss carryforward as an asset.
C) recognize the tax benefit of the operating loss carryback as a deferred liability.
D) recognize the tax benefit of the operating loss carryforward as a deferred liability.

Question 64

Assuming there are no prior period adjustments during the fiscal year, net income would be affected by

A) I
B) II
C) III
D) IV

Question 65

Income taxes for financial accounting purposes are apportioned to each of the following items except

A) other comprehensive income.
B) discontinued operations.
C) other revenues and expenses.
D) prior period adjustments.

Question 66

Which one of the following requires intraperiod tax allocation?

A) installment sales for tax purposes and accrued revenue recognition for accounting purposes
B) the excess of accelerated depreciation for tax purposes over depreciation for accounting purposes
C) interest income on municipal obligations
D) prior period adjustments

Question 67

Which one of the following transactions would result in the creation of a noncurrent deferred tax liability?

A) interest received on municipal bonds
B) a contingent liability expensed in the current period that is expected to require a cash payment in three years
C) royalties received in advance that are taxable when received, but that will be earned within the next three months
D) using an accelerated depreciation method for income tax purposes and the straight-line method for financial reporting purposes

Question 68

The Chance Company began operations in 2016 and, for that calendar year, reported an operating loss of $200,000. Due to sufficient verifiable positive evidence, no valuation allowance was established to reduce the deferred tax asset as of December 31, 2016. During 2017, Chance reported pretax accounting income of $375,000. Assuming an income tax rate of 35%, what should Chance record in 2017 as income tax payable at the end of 2017?

A) $0
B) $70,000
C) $61,250
D) $131,250

Question 69

All of the following are income tax disclosures required by GAAP except:

A) total deferred taxes from permanent differences and from temporary differences.
B) total deferred tax assets and total deferred tax liabilities.
C) total valuation allowance and net change in the allowance.
D) causes of deferred tax assets and deferred tax liabilities.

Question 70

Moore Company reported the following operating results during its first three years of operations: 2016 Pretax operating loss $\quad$ $ (40,000)
2017 Pretax operating loss $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $(200,000)
2018 Pretax operating income $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $ 300,000
No permanent or temporary differences occurred during these fiscal periods. Assuming an income tax rate of 35%, what is the amount of current income tax liability that Moore should report as of December 31, 2018?

A) $0
B) $21,000
C) $84,000
D) $91,000

Question 71

The presentation of the combination or "offsetting" of noncurrent deferred tax assets and liabilities is

A) not permitted by the FASB because of the separate identification principle.
B) not permitted by the FASB because of the close relationship between deferred tax assets and liabilities.
C) required by the FASB to avoid the detailed analysis necessary for more refined classification methods.
D) required by the FASB because of the close relationship between deferred tax assets and liabilities.

Question 72

At the end of its first year of operations on December 31, 2016, the Brandon Company reported taxable income of $100,000 and had a pretax financial loss of $60,000. Differences between taxable income and pretax financial income included interest revenue received from municipal obligations of $20,000 and warranty expense accruals of
$180,000. Warranty expenses of $90,000 are expected to be paid in 2017 and $110,000 in 2018. The enacted income tax rates for 2016, 2017, and 2018 are 30%, 35%, and 40%, respectively. The journal entry to record income tax expense on December 31, 2016, would be

Question 73

On December 31, 2015, Jefferson Lake, Inc. reported a deferred tax liability of $1,875, based on the following schedule of future taxable amounts and enacted tax rates:
On February 7, 2016, Congress amended a previously passed tax law. The amendment changed the tax rate to 35%
for 2016 and all future years.
Required:
Prepare the income tax journal entry for Jefferson Lake, Inc. necessary on February 7, 2016.

Question 74

Which of the following statements appropriately describe the different effects of operating loss carrybacks and carryforwards?

A) operating loss carrybacks result in a current asset and operating loss carryforwards result in a deferred tax asset.
B) operating loss carrybacks result in a retrospective asset and operating loss carryforwards result in a prospective asset.
C) operating loss carrybacks result in a deferred tax asset and operating loss carryforwards result in a deferred tax liability.
D) operating loss carrybacks result in a deferred tax liability and operating loss carryforwards result in a deferred tax asset.

Question 75

Smyrna Company had financial and taxable incomes as follows: Required:
a. Prepare the journal entries to record income taxes for all three years.
b. Explain why the taxes paid in 2018 are different from the tax return and the amount reported in the financial statements and provide an example of what could cause this difference.

Question 76

The acceptable balance sheet classifications for deferred tax assets and deferred tax liabilities under GAAP and IFRS are

A) I
B) II
C) III
D) IV

Question 77

Which one of the following would require interperiod tax allocation?

A) percentage depletion in excess of cost depletion
B) premiums paid on a life insurance policy of which the company is the beneficiary
C) interest on state municipal bonds
D) investment income recognized by the equity method for accounting purposes but as income when received for tax purposes

Question 78

Intraperiod tax allocation would be appropriate for all of the following except

A) an unrecognized gain on available-for-sale securities.
B) a loss from operations of a discontinued segment.
C) retrospective adjustments.
D) a loss from impairment of a long-lived asset.

Question 79

The new presentation requirements for deferred tax assets and liabilities require that

A) a corporation must separate its deferred tax liabilities into current and noncurrent groups.
B) a corporation must separate its deferred tax assets into current and noncurrent groups.
C) a corporation classify all deferred tax assets and liabilities as noncurrent.
D) a corporation classify all deferred tax assets and liabilities as current..

Question 80

Beare Company claims a $2,000,000 R&D tax credit. These credits are often challenged by the IRS. Based on analysis of probability distributions of possible outcomes, Beare attorneys determine they can recognize $1,800,000 as a current tax benefit. This means that as a result of claiming this tax credit, Beare Company will

A) decrease income tax expense $1,800,000 and decrease income tax payable by $1,800,000,
B) decrease income tax expense $1,800,000, decrease income tax payable by $2,000,000, and increase noncurrent tax liability $200,000.
C) decrease income tax expense $2,000,000, decrease income tax payable by $1,8000,000, and decrease noncurrent tax liability $200,000.
D) decrease income tax expense $2,000,000, decrease income tax payable by $1,8000,000, and increase noncurrent tax liability $200,000.