(Deferred Taxes, Income Effects) Henrietta Aguirre, CPA, is the newly hired director of corpo- rate taxation for Mesa Incorporated, which is a publicly traded corporation. Ms. Aguirre's first job with Mesa was the review of the company's accounting practices on deferred income taxes. In doing her review, she noted differences between tax and book depreciation methods that permitted Mesa to realize a sizable de- ferred tax liability on its balance sheet. As a result, Mesa paid very little in income taxes at that time. Aguirre also discovered that Mesa has an explicit policy of selling off plant assets before they reversed in the deferred tax liability account. This policy, coupled with the rapid expansion of its plant asset base, allowed Mesa to "defer" all income taxes payable for several years, even though it always has reported positive earnings and an increasing EPS. Aguirre checked with the legal department and found the pol- icy to be legal, but she's uncomfortable with the ethics of it. Instructions Answer the following questions.

(a) Why would Mesa have an explicit policy of selling plant assets before the temporary differences reversed in the deferred tax liability account?

(b) What are the ethical implications of Mesa's "deferral" of income taxes?

(c) Who could be harmed by Mesa's ability to "defer" income taxes payable for several years, despite positive earnings?

(d) In a situation such as this, what are Ms. Aguirre's professional responsibilities as a CPA?