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Unformatted text preview: ACT 6692 Module 14 – Assignment (Problems) 14-1—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. 1. Investments accounted for by the equity method. 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). 14-2—Permanent and temporary differences Indicate and explain whether each of the following independent situations should be treated as a temporary difference or a permanent difference. (a) For accounting purposes, a company reports revenue from installment sales on the accrual basis. For income tax purposes, it reports the revenues by the installment method, deferring recognition of gross profit until cash is collected. (b) Pretax accounting income and taxable income differ because 80% of dividends received from U.S. corporations was deducted from taxable income, while 100% of the dividends received was reported for financial statement purposes. (c) Estimated warranty costs (covering a three-year warranty) are expensed for accounting purposes at the time of sale but deducted for income tax purposes when paid. 14-3—Temporary differences There are four types of temporary differences. For each type: (1) indicate the cause of the difference, (2) give an example, and (3) indicate whether it will create a taxable or deductible amount in the future....
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This note was uploaded on 02/22/2011 for the course MBA 6692 taught by Professor Lewis during the Spring '11 term at Troy.
- Spring '11