Question

A magazine publisher collects one year in advance for subscription revenue. In the year of providing the magazines to customers, the company would record: Multiple Choice An increase in a deferred tax asset. A decrease in a deferred tax asset. An increase in a deferred tax liability. A decrease in a deferred tax liability.

Answer 1

Answer:

The correct answer is letter "B": A decrease in a deferred tax asset.

Explanation:

A Deferred Tax Asset is an asset on a balance sheet of a business that can be used to lower taxable income. It is the opposite of deferred tax liability that reflects something that will increase income taxes. Both are listed under current assets on the Balance Sheet.

The deferred tax asset will be generated when recorded income taxes owed are higher than the income taxes paid to the Government.

Thus, a decrease in deferred tax is recorded when a company has collected revenue in advance for a good not delivered or a service not rendered yet.