Consider the following statements:
Statement 1: When the tax base of a liability exceeds its carrying value, it results in a deferred tax asset.
Statement 2: Permanent differences result in a difference between the company’s statutory and effective tax rate.
Which of the following is most likely?

A Only Statement 2 is correct.

explanation

• When the tax base of a liability exceeds its carrying value, it results in a deferred tax liability.
• Statement 2 is correct.