Question

What is Favorable / Unfavorable Book-Tax Differences? I don't understand when an item is favorable or...

What is Favorable / Unfavorable Book-Tax Differences? I don't understand when an item is favorable or unfavorable.

For example (from my book), Interest income from municipal bonds. The income is included in book income, but excluded from taxable income for regular tax purposes... and it is a Favorable difference.

Question: Why is it a favorable difference and how exactly does it effect book and tax income?

Please give detail information that is easy to understand! THANK YOU

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Solution:

"Favorable" book-tax differences are subtractions from book income when reconciling to taxable income. On the other hand, unfavorable book-tax differences are additions to book income when reconciling to taxable income.

from above we can say that favorable book-tax differences decrease taxable income and unfavorable book-tax differences increase taxable income.

In the given example, Interest income from municipal bonds is exempt for tax purpose, therefore same is reduced from book income to arrive at taxable income. As it reduces the taxable income, therefore this is a favorable difference.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Ann Corporation reported pretax book income of $1,000,000. Included in the computation were favorable temporary differences...
Ann Corporation reported pretax book income of $1,000,000. Included in the computation were favorable temporary differences of $200,000, unfavorable temporary differences of $50,000, and favorable permanent differences of $100,000. Compute the company’s book equivalent of taxable income. Use this number to compute the company’s total income tax provision or benefit. book envirement of taxable income? total income tax provision or benefit?
Ann Corporation reported pretax book income of $1,030,000. Included in the computation were favorable temporary differences...
Ann Corporation reported pretax book income of $1,030,000. Included in the computation were favorable temporary differences of $370,000, unfavorable temporary differences of $253,000, and favorable permanent differences of $149,000. Compute the company’s book equivalent of taxable income. Use this number to compute the company’s total income tax provision or benefit. Book equivalent of taxable income? Total income tax provision or benefit?
How do you know if book-tax differences are favorable/unfavorable and temporary/permanent? Is there some certain situations...
How do you know if book-tax differences are favorable/unfavorable and temporary/permanent? Is there some certain situations that make it always the same or what differentiates them? Can you give examples? does it matter if its negtive or positive ect
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.
Shaw Corporation reported pretax book income of $1,140,000. Included in the computation were favorable temporary differences...
Shaw Corporation reported pretax book income of $1,140,000. Included in the computation were favorable temporary differences of $215,000, unfavorable temporary differences of $201,000, and favorable permanent differences of $125,000. Compute the company’s deferred income tax expense or benefit. ANSWER TO COMMENT: The question is complete from the publisher. Other instances of this same problem with only different dollar values have been answered by others with solely the above information provided. If you cannot answer using only the information provided, please...
Robinson Company had a net deferred tax liability of $34,476 at the beginning of the year,...
Robinson Company had a net deferred tax liability of $34,476 at the beginning of the year, representing a net taxable temporary difference of $101,400 (taxed at 34%). During the year, Robinson reported pretax book income of $401,400. Included in the computation were favorable temporary differences of $51,400 and unfavorable temporary differences of $20,700. During the year, Congress reduced the corporate tax rate  from 34% to 21%. Robinson's deferred income tax expense or benefit for the current year would be: Net deferred...
Which of the following is not an example of a permanent difference between pretax financial income...
Which of the following is not an example of a permanent difference between pretax financial income and taxable income? Question 1 options: A) Interest earned on tax exempt municipal bonds is included in pretax financial income B) Straight-line depreciation is expensed for financial accounting purposes but accelerated depreciation is used for income tax purposes C) Fines related to the violation of law D) All of these are permanent differences between pretax financial income and taxable income
Leer Corp.'s pre-tax income in 20X5 is $100,000. The temporary differences between amounts reported in the...
Leer Corp.'s pre-tax income in 20X5 is $100,000. The temporary differences between amounts reported in the financial statements and the tax return are as follows: Depreciation in the financial statements is $8,000 more than tax depreciation. The equity method of accounting resulted in financial statement income of $35,000. A $25,000 dividend is received during the year, which is eligible for the 80% dividends received deduction. Leer's effective income tax rate was 30% in 20X5. In its 20X5 income statement, Leer...
Weaver Company had a net deferred tax liability of $34,238 at the beginning of the year,...
Weaver Company had a net deferred tax liability of $34,238 at the beginning of the year, representing a net taxable temporary difference of $100,700 (taxed at 34 percent). During the year, Weaver reported pretax book income of $402,800. Included in the computation were unfavorable temporary differences of $50,700 and favorable temporary differences of $21,400. At the beginning of the year, Congress reduced the corporate tax rate to 21 percent. Weaver's deferred income tax expense or benefit for the current year...
Weaver Company had a net deferred tax liability of $39,000 at the beginning of the year,...
Weaver Company had a net deferred tax liability of $39,000 at the beginning of the year, representing a net taxable temporary difference of $101,000 (taxed at 34%). During the year, Weaver reported pretax book income of $404,000. Included in the computation were favorable temporary differences of $51,000 and unfavorable temporary differences of $22,000. At the beginning of the year, Congress reduced the corporate tax rate to 21%. Weaver's deferred income tax expense or benefit for the current year would be:...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT