Question

If tax laws allow a company to postpone paying taxes on activities that are currently reported in the company's income statement, the company recognizes a blank to reflect the anticipated future taxable amounts.

a) Current taxes payable
b) Valuation allowance
c) Deferred tax liability
d) Deferred tax asset

Answer 1

When tax laws allow company to postpone paying taxes, they recognize a deferred tax liability to reflect the future taxable amounts.

Step-by-step explanation:

When tax laws allow a company to postpone paying taxes on activities that are currently reported in the company's income statement, the company recognizes a deferred tax liability to reflect the anticipated future taxable amounts.

A deferred tax liability is created when there is a temporary difference between the accounting profit and the taxable profit. This liability represents the future obligation to pay taxes on the income that is currently being postponed.

For example, if a company reports higher income for tax purposes compared to its financial statement, it will have a deferred tax liability because it will have to pay taxes on the higher income in the future.