Century Company acquires the assets and liabilities of Horizon Company in a nontaxable acquisition. The acquisition results in recognition of a deferred tax asset. Which of the following is a possible explanation for this deferred tax liability?

Question

Quizplus · Accepted Answer

A deferred tax asset can arise if the book value of an asset is greater than its tax base, leading to future tax deductions. If Horizon's buildings have a book value greater than their market value, it implies that for tax purposes, the buildings can be depreciated more, creating a deferred tax asset.

Century Company Acquires the Assets and Liabilities of Horizon Company