Problem:

*** The new CEO of Efficacious, Inc. is trying to familiarize herself with the company's financials and has asked you to explain the seemingly erratic pattern of income tax rates and deferred taxes. As CFO, you enlist the assistance of a member of your staff to create a Tableau Dashboard depicting trends in tax expense, tax rates, and deferred taxes for the most recent ten years. You plan to use the Dashboard to help the CEO visualize your explanation.

Deferred Income Taxes Deferred income tax assets Deferred income tax liabilities Net deferred tax asset (liab.) 7M 6M 6M 5M 5M 4M 4M 3M 3M Deferred Income Tax Assets & Liabilities Net deferred tax asset (liab.) 2M 2M IM IM OM OM -IM -IM -2M -2M 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Effective Tax rate Composition of Income Before Income Taxes Income tax expense 30M Net income 35.0% 25M 30.0% 20M 25.0% 20.0% Net Income & Income Tax Expense 15M Effective Tax rate 15.0% 10M 10.0% 5M 5.0% OM 0.0% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021Drawing from he data. assess the following: Complete this question by selecting your answers from the dropdown menus in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 How would you explain the significant decline in the effective tax rate beginning in 2018? Deferred income tax assets began to decline while deferred income tax liabilities were decreasing A new tax law effective at the beginning of 2018 decreased the corporate tax rate in Canada from 35% to 21%. The company's net income has grown more rapidly than income tax expense. Deferred income tax assets began to decline while deferred income tax liabilities were decreasing. Complete this question by selecting your answers from the dropdown menus in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 What was the effective tax rate in 2018? Higher than the year before. 25.8%. Complete this question by selecting your answers from the dropdown menus in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 What is the primary reason that net deferred tax assets declined in 2018 and later? Defen'ed income tax assets began to exceed deferred tax liabilities in 2018. Deferred income tax liabilities began to exceed deferred tax assets in 2018. When statutory tax rates were reduced in 2018, the company remeasured its deferred income tax assets and deferred income tax liabilities to reflect smaller future deductible amounts and smaller future taxable amounts, respectively. Complete this question by selecting your answers from the dropdown menus in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 How would you explain the primary reason that the effective tax rate in 2018 did not decline to the levels of 2019 and later? When statutory tax rates were reduced in 2018, the company remeasured its deferred income tax liabilities to reflect the smaller future taxable amounts those liabilities represented, and deferred income tax liabilities were less than deferred tax assets. When statutory tax rates were reduced in 2018, the company remeasured its deferred income tax assets to reflect the smaller future deductible amounts those assets represented, and deferred income tax assets were higher than deferred tax liabilities. Complete this question by selecting your answers from the dropdown menus in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 What is the likely reason that income tax expense in 2018 was higher than in 2019 although income before taxes was higher in 2019? Income tax expense is higher when income before taxes is lower. When the company remeasured its deferred income tax liabilities to reflect lower statutory tax rates beginning in 2018, the company debited Income tax expense and credited Deferred income tax liabilities. When the company remeasured its deferred income tax assets to reflect lower statutory tax rates beginning in 2018, the company debited Income tax expense and credited Deferred income tax assets