32. Permanent and temporary differences. Listed below are items that are treated

Question

32. Permanent and temporary differences. Listed below are items that are treated differently for accounting purposes than they are for tax purposes. Indicate whether the items are permanent differences or temporary differences. For temporary differences, indicate whether they will create deferred tax assets or deferred tax liabilities. Investments accounted for by the equity method (ignore dividends received deduction) 1. 2. Advance rental receipts. 3. Fine for polluting 4. Estimated future warranty costs. 5. Excess of contributions over pension expense. 6. Expenses incurred in obtaining tax-exempt revenue. 7. Installment sales. 8. Excess tax depreciation over accounting depreciation. 9. Long-term construction contracts 10. Premiums paid on life insurance of officers (company is the beneficiary)

Explanation / Answer

Permanent difference

Permanent difference

Permanent difference

Nno. Solution Working 1 Temporary difference, deferred tax liability DTL accounts for the temporary difference among taxes that will come due in the future and today paid taxe 2 Temporary difference, deferred tax asset DTA occurs a business has overpaid taxes or taxes paid in advance on its balance sheet; used to reduce taxable income 3

Permanent difference

These occurs due differences in pre-tax book income and taxable income under tax returns and tax accounting 4 Temporary difference, deferred tax asset DTA occurs a business has overpaid taxes or taxes paid in advance on its balance sheet; used to reduce taxable income 5 Temporary difference, deferred tax liability DTL accounts for the temporary difference among taxes that will come due in the future and today paid taxe 6

Permanent difference

These occurs due differences in pre-tax book income and taxable income under tax returns and tax accounting 7 Temporary difference, deferred tax liability DTL accounts for the temporary difference among taxes that will come due in the future and today paid taxe 8 Temporary difference, deferred tax liability DTL accounts for the temporary difference among taxes that will come due in the future and today paid taxe 9 Temporary difference, deferred tax liability DTL accounts for the temporary difference among taxes that will come due in the future and today paid taxe 10

Permanent difference

These occurs due differences in pre-tax book income and taxable income under tax returns and tax accounting

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