Which of the following is not a permanent difference when reconciling accounting income to taxable income...

Which of the following is not a permanent difference when reconciling accounting income to taxable income in order to compute income tax expense?

Select one:

a. Fines

b. Dividends received from a Canadian company

c. Penalties

d. One half of a taxable capital gain

e. None of the above

Solutions

Expert Solution

A permanent difference is an accounting transaction that the company reports for book purposes but that it can’t report for tax purposes.

a. Fines & C. Penalties-

These expenses occur when a business breaks civil, criminal, or statutory law. The company deducts any fines assessed against book income, but income tax disallows a penalty/fine expense for tax purposes. The company doesn't get to reduce taxable income for the expense. Thus a permanent difference occurs between net and taxable income. Hence fines and penalties are permanent differences.

b. Dividend received from canadian corporation

Dividend received from another corporation are usually not taxable but are included in book income. This gives rise to permanent difference.

d. One half of taxable capital gain

capital gain are included fully in book income. however only half of capital gain is included in taxable income. Hence the book income and taxable income would never reconcile. It is a permanent difference.

The correct answer is none of the above (e) since all the options are permanent differences.

ekkarill92 answered 1 year ago

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