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Question:

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.
Explaination

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