If a company is required to pay a fine for violating environmental laws, U.S. GA

Question

If a company is required to pay a fine for violating environmental laws, U.S. GAAP treats that fine as an expense. U.S. Tax Law, however, does not allow a company to take any tax deduction for fines resulting from violations of law. What are the deferred tax consequences of this difference?

Select one:

a. This difference between GAAP and tax law creates a future taxable amount that results in a deferred tax liability.

b. This difference between GAAP and tax law creates a future deductible amount that results in a deferred tax asset.

c. This difference between GAAP and tax law creates a future deductible amount that results in a deferred tax liability.

d. This difference between GAAP and tax law creates a permanent difference that results in neither a future taxable amount nor a future deductible amount.

e. This difference between GAAP and tax law creates a future taxable amount that results in a deferred tax asset.

U.S. GAAP requires companies to record estimated Bad Debt Expense (and the related Allowance for Uncollectible Accounts) in the year that sales are made on account. U.S. Tax Law, however, does not allow a company to take a tax deduction until the uncollectible account is written off. What are the deferred tax consequences of this difference?

Select one:

a. This difference between GAAP and tax law represents a permanent difference that creates neither a future taxable amount nor a future deductible amount.

b. This difference between GAAP and tax law creates a future deductible amount that results in a deferred tax asset.

c. This difference between GAAP and tax law creates a future taxable amount that results in a deferred tax asset.

d. This difference between GAAP and tax law creates a future deductible amount that results in a deferred tax liability.

e. This difference between GAAP and tax law creates a future taxable amount that results in a deferred tax liability.

When a company purchases equipment, U.S. Tax Law sometimes allows that company to take a tax deduction for the entire cost of that equipment in the year of purchase. U.S. GAAP, by contrast, requires companies to depreciate the purchase cost over the useful life of the equipment. What are the deferred tax consequences of this difference?

Select one:

a. This difference between GAAP and tax law creates a future taxable amount that results in a deferred tax liability.

b. This difference between GAAP and tax law creates a future taxable amount that results in a deferred tax asset.

c. This difference between GAAP and tax law represents a permanent difference that creates neither a future taxable amount nor a future deductible amount.

d. This difference between GAAP and tax law creates a future deductible amount that results in a deferred tax liability.

e. This difference between GAAP and tax law creates a future deductible amount that results in a deferred tax asset.

Explanation / Answer

If a company is required to pay a fine for violating environmental laws, U.S. GAAP treats that fine as an expense. U.S. Tax Law, however, does not allow a company to take any tax deduction for fines resulting from violations of law.

Answer: (d) This difference between GAAP and tax law creates a permanent difference that results in neither a future taxable amount nor a future deductible amount.

Because Any penalty or fine arising as a result of violation of the law is not allowed as an income tax deduction so its a permanent difference .

U.S. GAAP requires companies to record estimated Bad Debt Expense (and the related Allowance for Uncollectible Accounts) in the year that sales are made on account. U.S. Tax Law, however, does not allow a company to take a tax deduction until the uncollectible account is written off.

Answer: (b) This difference between GAAP and tax law creates a future deductible amount that results in a deferred tax asset.

When a company purchases equipment, U.S. Tax Law sometimes allows that company to take a tax deduction for the entire cost of that equipment in the year of purchase. U.S. GAAP, by contrast, requires companies to depreciate the purchase cost over the useful life of the equipment.

Answer: (e). This difference between GAAP and tax law creates a future deductible amount that results in a deferred tax asset.

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