Listed below are items that are commonly accounted for differently for
financial reporting purposes than they are for tax purposes.
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) Interest is received on an investment in tax-exempt municipal obligations.
(g) 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.
(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.
