Which of the following items will not create a deferred tax liability?
A) Revenues or gains are recognized earlier for book purposes than for tax purposes.
B) Expenses or losses are deductible earlier for tax purposes than for book purposes.
C) Tax basis of an asset is less than its book basis.
D) Operating loss or tax credit carryforwards exist.

Question

Quizplus · Accepted Answer

Operating loss or tax credit carryforwards do not create a deferred tax liability because they will reduce future tax payments. A deferred tax liability arises when taxable income is higher for book purposes than for tax purposes, resulting in higher future tax payments. Options A, B, and C can create deferred tax liabilities since there is a timing difference between recognizing revenues/gains and expenses/losses for book and tax purposes, and this results in either a higher taxable income or a lower deductible expense for tax purposes, leading to higher future tax payments.

Which of the Following Items Will Not Create a Deferred