Zimt AG presents its fi nancial statements in accordance with US GAAP. In Year 3, Zimt discloses a valuation allowance of \($1\),101 against total deferred tax assets of \($19\),201. In Year 2, Zimt disclosed a valuation allowance of \($1\),325 against total deferred tax assets of \($17\),325. Th e change in the valuation allowance most likely indicates that Zimt’s:

A . deferred tax liabilities were reduced in Year 3.

B . expectations of future earning power has increased.

C . expectations of future earning power has decreased.