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Use the following data to answer Questions 1 through 7.
A firm acquires an asset for $120,000 with a 4-year useful life and no salvage value.
The asset will generate $50,000 of cash flow for all four years.
The tax rate is 40% each year.
The firm will depreciate the asset over three years on a straight-line (SL) basis for tax purposes and over four years on a SL basis for financial reporting purposes.

1.At the end of year 2, the firm's balance sheet will report a deferred tax:
  • A.asset of $4,000.
  • B.asset of $8,000.
  • C.liability of $8,000.

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