Question

Bruin Company received a $100,000 insurance payment on the death of its company president. The company...

Bruin Company received a $100,000 insurance payment on the death of its company president. The company annually paid $1,000 of nondeductible insurance premiums on the policy. Bruin reported the insurance receipt as income and deducted the premium payments on its books. For ASC 740 purposes, the income and deduction are characterized as:

Multiple Choice Both are taxable temporary differences. Both are deductible temporary differences. The insurance receipt is a favorable permanent difference and the premium payment is an unfavorable permanent difference. The insurance receipt is a taxable temporary difference and the premium payment is an unfavorable permanent difference.

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The correct answer will be option (c) The insurance receipt is a favorable permanent difference and the premium payment is an unfavorable permanent difference. For ASC 740 purposes, the income received as insurance payment on the death of the company president and deduction for the insurance premiums on the policy are characterized as the insurance receipt which is a favorable permanent difference and the premium payment which is an unfavorable permanent difference.

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