Question
For each of the following independent situations explain in detail the accounting treatment with respect to income taxes. Specifically, include the following: Should this be
For each of the following independent situations explain in detail the accounting treatment with respect to income taxes. Specifically, include the following:
- Should this be treated as a temporary difference or a permanent difference?
- Is a future deductible amount or a future taxable amount?
- Will this result in a deferred tax asset or a deferred tax liability?
(a) For accounting purposes, a company reports revenue from installment sales on the accrual basis. For income tax purposes, it reports the revenues by the installment-sales method, deferring recognition of gross profit until cash is collected.
(b) Pretax accounting income and taxable income differ because 80% of dividends received from U.S. corporations were deducted from taxable income, while 100% of the dividends received were reported for financial statement purposes.
(c) Estimated warranty costs (covering a three-year warranty) are expensed for accounting purposes at the time of sale but deducted for income tax purposes when paid.
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