DTL concept II

When a deferred tax liability account reverses it means that: A) cash flows have been lessened by the amount of the reversal. B) the actual tax bill is equal to the tax expense reported in the income statement. C) the actual tax bill is greater than the tax expense reported in the income statement. D) the actual tax bill is lower than the tax expense reported in the income statement.

C) the actual tax bill is greater than the tax expense reported in the income statement.

There might be additional deferred tax assets or liabilities accrued during that year meaning that the taxes payable might be higher or lower. But the cash flows would certainly decrease by the reversed amount. Hence A)

C

damn these DTL concepts are tricky, again I m stuck between A and C, leaning towards C though.

Income Tax Expense= Taxes Payable + change in DTL - change in DTA There is no real indication of IT Expense= Taxes Payable, as nothing has been said of any DTA, or even if there has been addition DTL for this (reversal must be for prior years). So I’d go with A- its the only thing that can be said for sure. Cash will reduce by the amount DTL reduces by. What’s the answer?

The actual tax bill is taxes payable on your tax report, that’s going to be your tax liability for that year, and yes, it is going to be higher as result of DTL reverse. I’d go with C too.

C is the answer, when all the pros are for it, how could it be anything else.