Question

Indicate whether the items are permanent differences or temporary differences. For temporary differences, indicate whether they...

Indicate whether the items are permanent differences or temporary differences. For
temporary differences, indicate whether they will create deferred tax assets or deferred
tax liabilities.

5. Installment sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes.
6. Interest is received on an investment in tax-exempt governmental obligations.
7. For some assets, straight-line depreciation is used for both financial reporting purposes and tax purposes, but the assets’ lives are shorter for tax purposes.
8. The tax return reports a deduction for 80% of the dividends received from various corporations. The cost method is used in accounting for the related investments for financial reporting purposes.

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Answer #1

Solution ;

5. Installment sales of investments are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes - Temporary difference, will create deferred tax liability

6. Interest is received on an investment in tax-exempt governmental obligations - Permanent difference

7. For some assets, straight-line depreciation is used for both financial reporting purposes and tax purposes, but the assets’ lives are shorter for tax purposes - Temporary difference, will create deferred tax liability as higher depreciation allowed for tax purpose.

8. The tax return reports a deduction for 80% of the dividends received from various corporations. The cost method is used in accounting for the related investments for financial reporting purposes - A permanent difference.

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