When a company receives rental payment in advance, U.S. GAAP requires that those

Question

When a company receives rental payment in advance, U.S. GAAP requires that those payments not be recorded as revenue until the future period in which they are earned. U.S. Tax Law, however, considers those rental payments to be taxable income immediately then they are received. 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 permanent difference that results in 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 taxable amount that results in a deferred tax asset.

Explanation / Answer

Solution.

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

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