Identify which of the following situation(s) will lead to an increase to deferred tax liabilities in the current year.
Note that there may be more than one correct answer. Check all that apply.
Question 4 options:
I) In 2012, Company B as $80 million in cumulative temporary differences related to installment sales not yet recognized for tax purposes. The current statutory rate is (and has been for some time) 35%. Congress enacts a rate change effective in 2013 which increases Company A's effective tax rate to 40% for the foreseeable future.
II) Company A reports a net loss of $150 million in 2010. The company elects to carry back $40 million to minimize the tax burden for two prior years' positive earnings. The remaining $110 million will be carried forward to offset future earnings.
III) Company D reports pretax income of $110 million in 2013. That income includes depreciation expense for equipment purchased in 2012. The company uses straight-line depreciation for financial accounting purposes and MACRS for tax reporting purposes. Total depreciation under MACRS is greater than under the straight line method in 2013.
IV) Company C reports pretax income of $50 million, which includes $5 million in municipal bond revenue.