Ch 16 Exercise #1a For the following independent scenarios, tell whether this is a permanent difference or a temporary difference. If it is a temporary difference, state whether it creates a deferred tax asset or liability. a) You receive the proceeds of a life insurance policy for a deceased officer which is considered revenue under US GAAP. Under the tax code, the proceeds are not taxable. b) You record the first year of an asset's depreciation expense based on straight-line allocation for financial reporting. The tax code requires deducting depreciation based on double-declining balance method. c) You recognize service revenue in the current period, accepting a note from your customer to pay for the service in the next fiscal year. Under the tax code, the taxable service revenue will be recorded when the note is paid. d) You record an expense in the current period that will be paid for in the next fiscal year, based on US GAAP. However, the tax code defers the deduction until the payment is actually made. e) Ajax provides financial services to individual investors using binding three year contracts payable in advance. US GAAP requires that the revenue collected in the first year be recognized as it is earned over the three-year contract term. The tax code recognizes the full contract revenue in year 1. Temporary or Permanent? Is taxable income bigger or smaller than accounting income? Deferred Tax Asset or Liability? (a) (b) (c) (d) (e)