Income-smoothing has been applied to a German subsidiary of Company Inc,as it had an abnormally high operating income last year.The accountants working for the subsidiary would likely have:

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Income-smoothing involves deferring some of the profits of one year to a later period. This is accomplished by creating a provision for future expenses, which can be used to offset the future income. In this case, as the subsidiary had an abnormally high operating income, the accountants would likely have created a provision for future expenses by debiting an expense account and crediting a provision account appearing under the liabilities section. This will reduce the reported income for the current year by increasing the expenses, which will create a reserve for future expenses.

Income-Smoothing Has Been Applied to a German Subsidiary of Company