Braun has just completed its first year of operations and has a number of differences between its pretax financial income and taxable income. The differences at the end of 2013 are as follows:
a. Braun recorded $7,000 of interest revenue on municipal bonds during 2013.
b. $15,000 of installment sales were recognized in income during 2013. They are expected to be received during January 2014.
c. Depreciation on machinery totaled $28,000 using straight-line depreciation for financial statements. Braun's tax accountant recorded $36,000 of depreciation on the company's tax return.
d. Braun was fined $3,000 for violating certain labor laws during 2013. Braun paid the fine during 2013 and agreed to ensure future violations would not occur.
e. Fielder Corporation has agreed to rent space from Braun in 2014. In December 2013, Braun received $7,500 from Fielder in advance for rent.
f. For 2013, Braun reported $9,500 of warranty expense on its income statement. The company's warranty liability at the end of 2013 was $6,250. Braun expects additional warranty costs to be paid during 2014.
Required:
1. For each item, determine if it results in a temporary or permanent difference. If the item results in a temporary difference, determine if it results in a deferred tax asset or deferred tax liability.
2. For each item, determine if it initially results in pretax financial income being greater than or less than taxable income.
3. Discuss why permanent differences do not impact future periods taxable income and how these differences affect tax rates.