E19-6 Identify Temporary or Permanent Differences
E19-6 (Identify Temporary or Permanent Differences) Listed below are items that are commonly
accounted for differently for financial reporting purposes than they are for tax purposes.
Instructions
For each item below, indicate whether it involves:
(1) A temporary difference that will result in future deductible amounts and, therefore, will usually
give rise to a deferred income tax asset.
(2) A temporary difference that will result in future taxable amounts and, therefore, will usually give
rise to a deferred income tax liability.
(3) A permanent difference.
Use the appropriate number to indicate your answer for each.
(a) ______ The MACRS depreciation system is used for tax purposes, and the straight-line depreciation
method is used for financial reporting purposes for some plant assets.
(b) ______ A landlord collects some rents in advance. Rents received are taxable in the period when
they are received.
(c) ______ Expenses are incurred in obtaining tax-exempt income.
(d) ______ Costs of guarantees and warranties are estimated and accrued for financial reporting
purposes.
(e) ______ Installment sales of investments are accounted for by the accrual method for financial
reporting purposes and the installment method for tax purposes.
(f) ______ For some assets, straight-line depreciation is used for both financial reporting purposes
and tax purposes but the assets' lives are shorter for tax purposes.
(g) ______ Interest is received on an investment in tax-exempt municipal obligations.
(h) ______ Proceeds are received from a life insurance company because of the death of a key officer.
(The company carries a policy on key officers.)
(i) ______ The tax return reports a deduction for 80% of the dividends received from U.S. corporations.
The cost method is used in accounting for the related investments for financial
reporting purposes.
(j) ______ Estimated losses on pending lawsuits and claims are accrued for books. These losses are
tax deductible in the period(s) when the related liabilities are settled.
(k) ______ Expenses on stock options are accrued for financial reporting purposes.
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Solution Summary
Your tutorial explains how to handle revenues when they are reported to the IRS before or after GAAP accrues them. The response also explains how to handle expenses when they are reported to the IRS before or after GAAP accrues them. The answers requested are then given.
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Extracted Content from Question Files:
- E19-6.doc
E19-6 (Identify Temporary or Permanent Differences) Listed below are items that are commonly
accounted for differently for financial reporting purposes than they are for tax purposes.
Instructions
For each item below, indicate whether it involves:
(1) A temporary difference that will result in future deductible amounts and, therefore, will usually
give rise to a deferred income tax asset.
(2) A temporary difference that will result in future taxable amounts and, therefore, will usually give
rise to a deferred income tax liability.
(3) A permanent difference.
Use the appropriate number to indicate your answer for each.
(a) ______ The MACRS depreciation system is used for tax purposes, and the straight-line depreciation
method is used for financial reporting purposes for some plant assets.
(b) ______ A landlord collects some rents in advance. Rents received are taxable in the period when
they are received.
(c) ______ Expenses are incurred in obtaining tax-exempt income.
(d) ______ Costs of guarantees and warranties are estimated and accrued for financial reporting
purposes.
(e) ______ Installment sales of investments are accounted for by the accrual method for financial
reporting purposes and the installment method for tax purposes.
(f) ______ For some assets, straight-line depreciation is used for both financial reporting purposes
and tax purposes but the assets’ lives are shorter for tax purposes.
(g) ______ Interest is received on an investment in tax-exempt municipal obligations.
(h) ______ Proceeds are received from a life insurance company because of the death of a key officer.
(The company carries a policy on key officers.)
(i) ______ The tax return reports a deduction for 80% of the dividends received from U.S. corporations.
The cost method is used in accounting for the related investments for financial
reporting purposes.
(j) ______ Estimated losses on pending lawsuits and claims are accrued for books. These losses are
tax deductible in the period(s) when the related liabilities are settled.
(k) ______ Expenses on stock options are accrued for financial reporting purposes.
"Thanks a lot Dr Carol!"
"Thank you kindly :)"
"I have tried jiving the numbers and still cant get them to work on your spreadsheet... all answers were wrong 1a, 1b, and 2 does have a reconciliation.... 3 are incorrect as well, I cannot figure out what I'm doing wrong the sheet looks good?"
"Thanks Carol. I don't want you to think that what is this guy doing? This was relevantly easy question compared to the rest. I also had the same results but i wanted my answers to be confirmed by an expert. Thank you so much and will be in touch during the week."
"Hello Carol, I just started working on this problem and I came across a question that I need clarification for, NPV was calculated as $2074.00. is this per year for 8 years? I am very sorry that I may be bothering you but I tried to figure it out on my own however couldn't do it. Thanks"