One of the most important concepts in corporate income taxation are temporary and permanent differences between financial accounting income and taxable income. To supplement your readings in Spilker Chapter 16 and PowerPoints (see Course Documents), I also provide you with the PowerPoints from Spiceland Intermediate Financial Accounting Chapter 16 (a coincidence that it is the same chapter; see footnote below). Watson Associates purchases $60,000 of computer equipment in January of 2021. Watson estimates that the computer equipment will have an estimated useful life of three years. For financial reporting purposes, Watson records straight-line depreciation each year of $20,000. For tax purposes, Watson can deduct the entire $60,000 cost of the equipment in 2021. Assume income before tax and depreciation was $120,000 per year. First complete the two tables below. Then please answer the following questions. 1. This type of difference between book and tax income is known as a "temporary" difference. Why is it called that? 2. Use specific numbers in the tables to prove that this is a temporary difference. 3. Is this a favorable or unfavorable difference? Why? 4. What is a permanent difference? 5. Give an example of a permanent difference? 6. Comment on anything else you learned while preparing this assignment. In thousands Income before tax and depreciation Depreciation in the income statement Pretax accounting income 2021 2022 2023 Total $120 $120 $120 $360 In thousands 2021 2022 2023 Total Income before tax and depreciation $120 $120 $120 $360 Depreciation on the tax return Taxable income (tax return) Tax rate Tax payable 21% 21% 21% NA NA