When comparing GAAP reporting to tax reporting, which statement about deferred tax liabilities is true?

The correct answer is that deferred tax liabilities increase with accelerated depreciation.

This is based on the fundamental concept that under GAAP (Generally Accepted Accounting Principles), companies have specific rules for recognizing revenues and expenses, which may differ from the treatments permitted for tax reporting. Accelerated depreciation allows a company to take a larger deduction in the early years of an asset's useful life. This reduces taxable income in those years compared to the income reported in the financial statements under GAAP, where depreciation might be calculated using a straight-line method.

As a result, the company pays less tax in the early years, leading to a temporary difference, which creates a deferred tax liability. This liability reflects the taxes that will eventually need to be paid in the future when the income tax obligation related to the higher GAAP income is recognized.

In contrast, the other options do not accurately reflect the relationship between depreciation methods and deferred tax liabilities. For example, if deferred tax liabilities were not affected by depreciation methods, it would ignore the impact of accounting principles on tax calculations. Moreover, deferred tax liabilities do not signify an overpayment of taxes; rather, they indicate taxes that are owed in the future due to timing differences. Finally, deferred tax liabilities can arise from various methods of depreciation