JWCL543_ch19_01-08.qxd

Listed below are items that are commonly accounted for differently for financial reporting purposes than they are for tax purposes.

Instructions

For each item below, indicate whether it involves:

1. (1) A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset.
2. (2) A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability.
3. (3) A permanent difference.

Use the appropriate number to indicate your answer for each.

1. (a) ______ For some assets, straight-line depreciation is used for tax purposes while double-declining balance method is used for financial reporting purposes.
2. (b) ______ Warranty expenses are accrued when the sale is made, but cannot be deducted until the work is actually performed.
3. (c) ______ The company uses the percentage of complete method to record revenue on long-term con- tracts for financial reporting purposes, but the completed contract method is used for tax purposes.
4. (d) ______ Accelerated depreciation for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some equipment.
5. (e) ______ A landlord collects some rents in advance. Rents received are taxable in the period when

they are received.

1. (f) ______ Tax-exempt income.
2. (g) ______ An SEC fine related to financial reporting irregularities.
3. (h) ______ For financial reporting purposes, an estimated loss from a lawsuit is accrued.

The tax re-

turn will not report a deduction until an amount is paid.

1. (i) ______ A liability for a guarantee is accrued for financial reporting purposes.
2. (j) ______ Installment sales are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes.