(EXPLAIN COMPUTATION OF DEFERRED TAX LIABILITY FOR MULTIPLE TAX RATES)

At December 31, 2017, Higley Corporation has one temporary difference which will reverse and cause taxable amounts in 2018. In 2017, a new tax act set taxes equal to 45% for 2017, 40% for 2018, and 34% for 2019 and years thereafter.

INSTRUCTIONS:

Explain what circumstances would call for Higley to compute its deferred tax liability at the end of 2017 by multiplying the cumulative temporary difference by:

(A) 45%

(B) 40%

(C) 34%