Question

Deferred income taxes arise because a. corporations often make errors in their tax estimations. b. companies can use accounting methods that minimize net income for tax purposes and other methods that maximize net income for reporting to shareholders. c. the IRS owes a company a refund from last year. d. large corporations generally have operations in foreign countries whose tax law is quite different from U.S. tax

Answer 1

Answer:

b. companies can use accounting methods that minimize net income for tax purposes and other methods that maximize net income for reporting to shareholders.

As they use a basis for accounting and prepare the financial statement temporary difference arise which, are settled overtime as in the end both, tax basis and accounting basis much get the same income

The most common example is depreciation if a company uses S179 and depreciate the entire of the asset purchase next year, while the accounting will have a depreciation expense associate with the equipment for tax purposes this assets basis is zero as it was completely depreciate thus, it will have a higher income making more tax payable than accounting income tax expense.

Explanation:

a. corporations often make errors in their tax estimations.

While this can occur is not the reason for deferred income taxes

c. the IRS owes a company a refund from last year.

No, the refund will not generate deferrd income tax It will be a receivable for the company.

d. large corporations generally have operations in foreign countries whose tax law is quite different from U.S. tax

While corporations do operate in foreing countries these doesn't necessary generate deferred taxes. Difference arise when the company uses a different method in his accounting than the State to determinate the tax basis.