In 2009, Magic Table Inc. decides to add a 36-month warranty on its new product sales. Warranty costs are tax deductible when claims are settled. In its financial statements for 2009, Magic Table Inc incurs:

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Quizplus · Accepted Answer

The warranty costs are recognized as an expense in the financial statements when the product is sold, but for tax purposes, they are deductible only when claims are settled. This timing difference creates a deferred tax asset, as the company will have future tax deductions.