Question

An item that would create a permanent difference in pretax financial income, and taxable income would...

An item that would create a permanent difference in pretax financial income, and taxable income would be:

Question 7 options:

1) using accelerated depreciation for tax purposes and straight-line depreciation for book purposes.
2) receiving cash in advance for revenue to be earned next year.
3) earning interest revenue from tax-free municipal bonds.
4) none of the above would create a permanent difference.
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Homework Answers

Answer #1

Answer is 3) earning interest revenue from tax- free municipal bonds.

Explanation:

Municipal bonds are debts instruments issued by state, city or country to finance its capital expenditures. It is issued by Government body to raise capital for construction of various projects.Interest income received from municipal bonds are generally exempted from federal income tax.So, earning interest income is taken into while calculating profit in books of accounts but at the time it is completely exempted i.e.not taken into consideration in current as well as future year for calculating taxable income. So, earning interest revenue from tax-free municipal bonds is permanent difference.

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