Question

Tribal Corporation had the following activity that produced differences in book and tax treatment occur during the year. Classify whether each book-tax difference is generally favorable or unfavorable (F or U), temporary or permanent (T or P).

 Bad debt expense when first estimate likely may not be paid but not yet very certain it will not be paid

	I.	Favorable, temporary
	II.	Unfavorable, temporary
	III.	Favorable, permanent
	IV.	Unfavorable, permanent

Answer 1

Option II is correct. Unfavorable,temporary.

Bad debt expense when first estimate likely may not be paid but not yet very certain it will not be paid is an unfavourable temporary difference, since we will not get deduction for the same in tax laws untill there will be actual bad debt loss.

It is not a permanent difference, whenever we will incur actual bad debt loss we will get the deduction for the same. Further it is also not a favorable difference since we are not getting deduction for the same untill we incur actual bad debt loss. Hence all other options given are incorrect.