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Question:
The increase in the valuation allowance tells us that the company has decreased its estimate of its future profitability and thus its ability to realize the benefits of its deferred tax assets. A longer period for recognition of unearned revenue would not affect the temporary differences reflected in deferred tax assets. Increasing the estimate of assets’ useful lives would tend to slow financial statement depreciation relative to depreciation for tax, which would increase deferred tax liability going forward, other things constant. Decreases in the carrying values of both a DTL and a DTA may reflect a decrease in the tax rate.
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