Question

1) Interest from tax exempt municipal bonds is an example of a temporary difference which will result in a deferred tax liability. (answer True or False)

2) Warranty expense accrued on the income statement but not yet deducted on the tax report is an example of a temporary difference which will give rise to a deferred tax asset. (answer True or False)

3) Income tax payable is computed by multiplying taxable income by the current tax rate. (answer True or False)

Answer 1

Q 1.answer- False.

Interest income from state and Municipal Bond that is exempted from tax is an example of a permanent difference.

Q 2.answer - True.

The increase in warranty obligations results in warranty expenses and will provide future deductible amount .because under the IRC, a deduction for warranty cost is not permitted until such cost is incurred. Future deducted amount leads to deffered tax assets.

Q 3.answer- False.

After calculating your total taxable income applied the tax rates relevant for the financial year for which the income has been calculated to compute your tax liability.

Tax liability = total taxable income * tax rates.