Using Deferred Taxes Noble Company recently purchased additional buildings and equipment. Because it wishes to retain as much of its cash as possible for expansion, Noble is considering using accelerated depreciation on the newly acquired assets for income tax purposes to reduce the amount of taxes paid. The company plans to continue to use straight-line depreciation for financial reporting and has been told there is a possibility that this strategy could result in a large liability for deferred federal income taxes being reported on its balance sheet.

a. In what way can this strategy result in a tax savings during the early years of ownership?

b. Why is there likely to be a liability for deferred income taxes reported on Noble’s balance sheet if it adopts this approach?

c. If Noble continues to expand, why may it not have to pay off the liability for deferred income taxes in the near future?