Question

Which of the following creates a deferred tax liability? multiple choice

a. an unrealized gain from recording investments at fair value.
b. subscriptions collected in advance.
c. accrued post-retirement employee benefits.
d. accrued warranty liability.

Answer 1

An unrealized gain from recording investments at fair value creates a deferred tax liability. The correct option is a. an unrealized gain from recording investments at fair value.

Step-by-step explanation:

A deferred tax liability is created when there is a difference between the amount of income or expenses reported on a company's financial statements and the amount reported on its tax return.

Out of the options given, the situation that creates a deferred tax liability is a. an unrealized gain from recording investments at fair value.

When a company records an unrealized gain from recording investments at fair value, it means that the fair market value of the investments has increased, but the company has not sold them yet. This gain is recognized for accounting purposes but not for tax purposes.

Therefore, the company will have to pay taxes on this gain in the future, creating a deferred tax liability. The correct option is a. an unrealized gain from recording investments at fair value.