There are several categories of differences between financial reporting and income tax reporting. Two important ones are referred to as temporary differences and permanent differences. Temporary differences can be further subdivided into taxable and deductible differences. For temporary differences, the focus is on the future - what is the effect on future taxable income relative to future accounting income. For permanent differences, the focus is on the current year - what is the effect on taxable income.

Several items appear below. For each item in the first column, choose the appropriate effect by clicking on the associated cell in the Effect column and selecting from the list provided. Choose only one response for each item. Your choices are:

"DTA" if the item causes an increase in deferred tax assets

"DTL" if the item causes an increase in deferred tax liabilities

"Perm" if the item is a permanent difference

"None" if the item is not one of the above

Assume that for income tax purposes, the firm uses the modified cash basis.

	Item	Effect
1	Straight-line depreciation for financial reporting, MACRS for tax reporting	[ Select ] ["DTA", "DTL", "Perm", "None"]
2	Fines for violation of law	[ Select ] ["DTA", "DTL", "Perm", "None"]
3	Excess of statutory depletion over cost depletion	[ Select ] ["DTA", "DTL", "Perm", "None"]
4	Prepaid expenses	[ Select ] ["DTA", "DTL", "Perm", "None"]
5	Accounts receivable	[ Select ] ["DTA", "DTL", "Perm", "None"]
6	Unearned revenue	[ Select ] ["DTA", "DTL", "Perm", "None"]
7	Bad debt expense (allowance method for the books)	[ Select ] ["DTA", "DTL", "Perm", "None"]
8	Estimated warranty expense	[ Select ] ["DTA", "DTL", "Perm", "None"]
9	Carryforward of net operating loss (more likely than not realizable)	[ Select ] ["DTA", "DTL", "Perm", "None"]
10	Municipal bond interest	[ Select ] ["DTA", "DTL", "Perm", "None"]
11	Installment sales (point of sale recognition for books)	[ Select ] ["DTA", "DTL", "Perm", "None"]
12	Recognized estimated lawsuit loss for books	[ Select ] ["DTA", "DTL", "Perm", "None"]
13	Completed contract method for tax, percentage of completion method for the books	[ Select ] ["DTA", "DTL", "Perm", "None"]
14	Unrealized gain on trading securities	[ Select ] ["DTA", "DTL", "Perm", "None"]