Temporary and Permanent Differences In the current year, you are calculating a diversified company’s deferred taxes. Based on an analysis of the company’s current taxable income and pretax financial income, you have iden-tified the following items that create differences between the two amounts and that may result in differences between the company’s future taxable income and its future pretax financial income:   ________ 1. Percentage depletion deducted for taxes in excess of cost depletion for financial reporting

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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P18-2 Temporary and Permanent Differences In the current year, you are calculating a diversified company’s deferred taxes. Based on an analysis of the company’s current taxable income and pretax financial income, you have iden-tified the following items that create differences between the two amounts and that may result in differences between the company’s future taxable income and its future pretax financial income: 

 ________ 1. Percentage depletion deducted for taxes in excess of cost depletion for financial reporting

_________2. Warranty costs to be deducted for taxes that were deducted as warranty expense for financial reporting

_________3. Gross profit to be recognized for taxes under the completed-contract method that was recognized for financial reporting under the percentage-of-completion method

_________4. Officers’ life insurance premium expense deducted for financial reporting

_________5. Rent revenue to be recognized for financial reporting that was reported for taxes when collected in advance

_________6. Loss from writedown of inventory that was recognized for financial reporting but that will be deducted for taxes when the inventory is sold

_________7. Interest revenue on municipal bonds recognized for financial reporting

_________8. Loss due to contingent liability that was deducted for financial reporting that will be deducted for taxes when the liability is actually paid

_________9. Gross profit to be recognized under the cash-basis method for tax purposes that was recognized on an accrual basis for financial reporting ________ 10. Depreciation to be recognized for financial reporting in excess of MACRS depreciation to be deducted for tax purposes

________ 11. Investment income that has been recognized under the equity method for financial reporting that will be recognized as fully taxable for tax purposes when dividends are collected

Required:

For each difference, indicate whether it is a temporary difference (T) or a permanent difference (P) by placing the appropriate letter on the line provided. If the difference is a temporary difference, also indicate for the current year whether it will result in a future taxable amount (FT) or a future deductible amount (FD).

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