E10.14 Deferred Income Taxes and Changing Tax Rates. The Waterloo Company uses straight-line depreciation accounting in its corporate financial reports but MACRS depreciation accounting for income tax purposes. At the end of the year. Waterloo reported taxable income to the IRS totaling $100,000 and pretax net income to its shareholders of S150,000. MACRS depreciation expense for the year totaled $70,000, while straight- line depreciation was only $40,000. Assume an effective tax rate of 35 percent; calculate Waterloo's deferred income taxes for the year. Is the company's deferred income tax effect an asset or a liability? If the income tax rate was lowered to 30 percent, how much will the company's deferred income taxes change? Explain the change in deferred income taxes