Question

Question 13 7.6 pts Which of the following best describes a deferred tax asset? O An asset created when a company purchases tax-free bonds. O An asset created by deferring a tax benefit to a future period. O An asset created when a company prepays its income taxes to the IRS. O An asset created by deferred a tax obligation to a future period.

Answer 1

Answer:

An assets created by deferring a tax benefit to a future period.

Deferred tax assets are often created due to taxes paid or carried forward but not yet recognized in the income statement. For example, deferred tax assets can be created due to the tax authorities recognizing revenue or expenses at different times than that of an accounting standard. This asset helps in reducing the company’s future tax liability. It is important to note that a deferred tax asset is recognized only when the difference between the loss-value or depreciation of the asset is expected to offset future profit.

A deferred tax asset can conceptually be compared to rent paid in advance or refundable insurance premiums; while the business no longer has cash on hand, it does have comparable value, and this must be reflected in its financial statements.

A deferred tax asset is the opposite of a deferred tax liability, which can increase the amount of income tax owed by a company.