Cougar, Inc., an IFRS reporter, estimates a deferred tax asset of $60,000 due to a basis difference in warranty liabilities. Management has assessed that it is probable that the firm will not realize 40% of the deferred tax asset. After recording the net deferred tax asset, Cougar's net income will ________ and assets will ________
A) increase by $24,000; increase by $24,000
B) decrease by $24,000; decrease by $24,000
C) increase by $60,000; decrease by $60,000
D) decrease by $60,000; increase by $60,000
Answer: B
Explanation: B) Does not expect to collect $60,000 × 40% — this increases income tax expense — reducing net income.
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