67. Assume U.S. GAAP (generally accepted accounting principles) applies unless
otherwise noted.
A company records the following two transactions:
I. €300,000 of rental revenue is received in advance on a two-year lease. It is taxed on
a cash basis, but deferred for accounting purposes.
II. €500,000 of installment sales. No payments are required for one year after which
collections will be made on an equal basis over 12 months and taxed on a cash basis.
The entire sale and related profit will be recognized for financial reporting purposes
in the year of sale.
Which of the above transactions will most likely give rise to a deferred tax
liability on the balance sheet?
A. I only.
B. II only.
C. Both I and II.
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