Stockton Corporation has made an accounting entry to record deferred taxes as a liability resulting from temporary differences between accounting income and taxable income.Which of the following statements is true?
A)Deferred tax will be decreased.
B)Stockholders' equity will be increased.
C)Stockholders' equity will be decreased.
D)Assets will be decreased.

Question

Quizplus · Accepted Answer

Recording deferred taxes as a liability means that the company recognizes a future tax liability that will result in decreased taxable income in future periods. This will reduce stockholders' equity since it represents a claim on the company's assets. Therefore, the correct answer is C) Stockholders' equity will be decreased.

Stockton Corporation Has Made an Accounting Entry to Record Deferred