For each item below indicate whether the situation would be treated as a temporary or permanent difference and briefly explain why:

1)Estimated warranty costs (covering a three-year warranty) are expensed for financial reporting purposes at time of sale but deducted for income tax purposes when paid

2)Depreciation for book and income tax purposes differs because of differing bases of carrying the property which was acquired in an exchange.The different bases are the result of different rules used for book and tax basis to determine the basis of property acquired in an exchange.

3)A company properly uses the equity method to account for its 30% investment in another company.The investee company pays dividends that are about 10% of its annual earnings. The investee company has consistently reported net income.

4)A company maintains a significant portfolio of available-for-sale securities.On the current balance approximately 25% of the portfolio is shown as current and these investments have a total fair value above their total cost basis.The remainder of the portfolio is shown as long-term investments and these securities have a total fair value below their total cost basis.No impairments related to any securities are deemed other than temporary.

5)A company carries a life insurance policy on its CEO with the company as the beneficiary.The policy protects the company against the cost associated with the possible transition caused by an untimely death of the CEO.

Part 2: For each the items above that result in a temporary difference,

1) determine the type of deferred tax account that would result, and

2) determine the appropriate balance sheet classification of the deferred tax account.