The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows ($ thousands):
Year 3 | Year 2 | ||
Deferred tax assets: | |||
Accrued expenses | $8,613 | $7,927 | |
Tax credit and net operating loss carryforwards | 2,288 | 2,554 | |
LIFO and inventory reserves | 5,286 | 4,327 | |
Other | 2,664 | 2,109 | |
Deferred tax assets | 18,851 | 16,917 | |
Valuation allowance | (1,245) | (1,360) | |
Net deferred tax assets | $17,606 | $15,557 | |
Deferred tax liabilities: | |||
Depreciation and amortization | $(27,338) | $(29,313) | |
Compensation and retirement plans | (3,831) | (8,963) | |
Other | (1,470) | (764) | |
Deferred tax liabilities | (32,639) | (39,040) | |
Net deferred tax liability | ($15,033) | ($23,483) |
Question
Compared to the provision for income taxes in Year 3, the company’s cash tax payments were:
- lower.
- higher.
- the same.
Hello Deepak,
As you can see the company net deferred tax liability has decreased from year 2 to 3. Which means the company has paid those taxes which were deferred, due to which the company’s cash tax payments were higher.
option B.