What is the effect on the deferred tax balance as a result of the rate change? $$\begin{array} { | l | r | }
\hline \begin{array} { l }
\text { Opening deductible (taxable) temporary } \
\text { differences }
\end{array} & ( 400,000 ) \
\hline \text { Current year deductible (taxable) temporary } & ( 100,000 ) \
\text { differences } & \
\hline \text { Tax rate (prior year) } & 30 \% \
\hline \text { Tax rate (current year) } & 40 \% \
\hline
\end{array}$$

Question

What is the effect on the deferred tax balance as a result of the rate change? $$\begin{array} { | l | r | } 
\hline \begin{array} { l } 
\text { Opening deductible (taxable) temporary } \
\text { differences }
\end{array} & ( 400,000 ) \
\hline \text { Current year deductible (taxable) temporary } & ( 100,000 ) \
\text { differences } & \
\hline \text { Tax rate (prior year) } & 30 \% \
\hline \text { Tax rate (current year) } & 40 \% \
\hline
\end{array}$$

Quizplus · Accepted Answer

The question does not provide information about the direction of the rate change, but it is assumed that the rate increased. An increase in tax rate will result in a decrease in deferred tax liability, and therefore a credit to the deferred tax balance. The amount of the credit will depend on the amount of the deferred tax liability and the percentage increase in the tax rate. Without more information, it is impossible to determine the exact amount of the credit, but the closest answer choice is B, which is a credit of $160,000.

What Is the Effect on the Deferred Tax Balance as a Result