Deferred taxes would be classified as
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A. B. C. D. E.C
Deferred income taxes represent deferred tax assets.
Deferred taxes are not classified as any of the options provided in the question. Deferred taxes are classified as a non-current liability or non-current asset, depending on the nature of the temporary differences between taxable income and accounting income.
When a company prepares its financial statements, it uses both accounting principles (generally accepted accounting principles, or GAAP) and tax regulations to calculate its income and expenses. These two sets of rules often result in different amounts of income or expenses being recognized for accounting and tax purposes. The temporary differences that arise from these discrepancies are the basis for deferred taxes.
Deferred tax liabilities arise when taxable income is lower than accounting income, leading to lower tax payments in the current period. This means that the company has already reported more income for accounting purposes than it has recognized for tax purposes. In the future, when the temporary difference reverses, the company will have to pay more taxes than it has accounted for so far. These deferred tax liabilities represent future tax obligations and are classified as non-current liabilities.
On the other hand, deferred tax assets arise when taxable income is higher than accounting income, resulting in higher tax payments in the current period. This means that the company has already recognized more tax expenses than it will actually have to pay in the future. When the temporary difference reverses, the company will be able to reduce its tax payments. These deferred tax assets represent future tax benefits and are classified as non-current assets.
To summarize, deferred taxes are not classified as long-term borrowing (option A), current liability (option B), current asset (option C), prepaid expense (option D), or stockholders' equity (option E). The correct classification for deferred taxes depends on whether they represent future tax obligations (deferred tax liabilities) or future tax benefits (deferred tax assets) and is typically reported in the non-current liability or non-current asset section of the balance sheet.