The $357,000 adjustment in 2007 most likely resulted in:

A. an increase in deferred tax assets.

B. an increase in deferred tax liabilities.

C. no change to deferred tax assets and liabilities.

A company’s provision for income taxes resulted in effective tax rates attributable to loss from continuing operations before cumulative effect of change in accounting principles that varied from the statutory federal income tax rate of 34 percent, as summarized in the table below.

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Year Ended 30 June Expected federal income tax expense (benefit) from continuing operations at 34 percent Expenses not deductible for income tax purposes State income taxes, net of federal benefit Change in valuation allowance for deferred tax assets Income tax expense 2007 2006 ($112,000) $768,000 357,000 32,000 132,000 22,000 (150,000) (766,000) $227,000 $56,000 2005 $685,000 51,000 100,000 (754,000) $82,000