Which of the following book tax basis differences

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40. Which of the following book-tax basis differences results in a deductible temporary difference? A. Book basis of an employee post-retirement benefits liability exceeds its tax basis B. Book basis of a building exceeds the tax basis of the building C. Book basis of an acquired intangible exceeds the tax basis of the intangible D. Tax basis of a prepaid liability exceeds the book basis of the liability A. Book basis of an employee post-retirement benefits liability exceeds its tax basis Payment of the retirement benefit will create a future tax deduction 41. Which of the following items is not a permanent book/tax difference? A. Tax-exempt life insurance proceeds B. Non-deductible meals and entertainment expense C. Accrued vacation pay liability not paid within the first 21⁄2 months of the next tax year D. Domestic production activities deduction C. Accrued vacation pay liability not paid within the first 21⁄2 months of the next tax year The accrued vacation pay would be a temporary book/tax difference. 42. Marlin Corporation reported pretax book income of $1,000,000 in 2011. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. Finally, the Company subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Assuming a tax rate of 34%, the Corporation's current income tax expense or benefit for 2011 would be: A. $387,600 B. $377,400 C. $340,000
D. $292,400 B. $377,400 ($1,000,000 + $25,000 + $100,000 - $15,000 = $1,110,000 34%) 43. Marlin Corporation reported pretax book income of $1,000,000 in 2011. During the current year, the net reserve for warranties increased by $25,000. In addition, book depreciation exceeded tax depreciation by $100,000. In prior years, tax depreciation exceeded book depreciation by a cumulative amount of $500,000. Finally, the Company subtracted a dividends received deduction of $15,000 in computing its current year taxable income. Assuming a tax rate of 34%, the Corporation's deferred income tax expense or benefit for 2011 would be: A. $25,500 net deferred tax expense B. $25,500 net deferred tax benefit C. $42,500 net deferred tax benefit D. $42,500 net deferred tax expense C. $42,500 net deferred tax benefit The increase in the warranty reserve is a deductible temporary difference of $25,000. The "draw down" of the prior excess of tax depreciation over book depreciation reduces an existing taxable temporary difference. The result is a net deferred tax benefit of $42,500 [($25,000 + $100,000) 34%].

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