Bao Corporation faced a 50% marginal tax rate last year and showed the following financial and tax

reporting information:

·Deferred tax asset of $1,000.

·Deferred tax liability of $5,000.

Based only on this information and the news that the tax rate will decline to 40%, Bao Corporation’s:

A.deferred tax asset will be reduced by $400 and deferred tax liability will be reduced by $2,000.

B.deferred tax liability will be reduced by $1,000 and income tax expense will be reduced by $800.

C.deferred tax asset will be reduced by $200 and income tax expense will be reduced by $1,000.