What is the effect on the deferred tax balance as a result of the rate change?

Question

Quizplus · Accepted Answer

A reduction in tax rate would result in a decrease in the deferred tax liability. The decrease in the deferred tax liability would result in a credit to the deferred tax account, which is recognized in the income statement. The amount of credit would be the difference between the new tax rate and the old tax rate, multiplied by the deferred tax liability balance. Therefore, the credit to the deferred tax balance would be 0.4 * $400,000 = $160,000.

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