Choose the best statement with respect to tax rates.
A) The tax rate used to record a deferred income tax asset or liability should be the enacted tax rate at the balance sheet date.
B) The current tax rate should be used to record a deferred income tax asset or liability.
C) The projected tax rate should be used to record a deferred income tax asset or liability.
D) None of these answers are correct.

Question

Quizplus · Accepted Answer

The tax rate used to record a deferred income tax asset or liability should be the enacted tax rate at the balance sheet date. This is because the enacted tax rate reflects current tax law, which is used to calculate taxes payable or receivable in future years, and therefore is the most appropriate rate to use for accounting purposes. Current or projected tax rates may change over time and are not necessarily indicative of the rate that will actually be in effect when the deferred item is realized or settled.

Choose the Best Statement with Respect to Tax Rates