medium · Financial Accounting accounting-cycle-financial-statements

Vector Corp. recognizes an Asset Retirement Obligation (ARO) of $100,000 on its balance sheet. For tax purposes, the remediation costs are only deductible when the cash is spent at the end of the asset's life. At a 21% tax rate, this results in:

1. A Deferred Tax Asset of $21,000.
2. A $21,000 reduction in the carrying value of the related tangible asset.
3. A Deferred Tax Liability of $21,000.
4. A permanent difference with no deferred tax impact.

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