1. For each item below, indicate whether it involves: (1) A temporary difference that will result...

1. For each item below, indicate whether it involves: (1) A temporary difference that will result in future deductible amounts and, therefore, will usually give rise to a deferred income tax asset. (2) A temporary difference that will result in future taxable amounts and, therefore, will usually give rise to a deferred income tax liability. Use the appropriate number to indicate your answer for each. Answer (a) For some assets, straight-line depreciation is used for tax purposes while double-declining balance method is used for financial reporting purposes. (b) Warranty expenses are accrued when the sale is made, but cannot be deducted until the work is actually performed. (c) Accelerated depreciation for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some equipment. (d) A landlord collects some rents in advance. Rents received are taxable in the period when they are received. (e) For financial reporting purposes, an estimated loss from a lawsuit is accrued. The tax return will not report a deduction until an amount is paid. (f) A liability for a guarantee is accrued for financial reporting purposes. (g) Installment sales are accounted for by the accrual method for financial reporting purposes and the installment method for tax purposes.

Expert Solution

1	Temporary differences whether result in deferred tax assets or liabilities

a	Straight line depreciation will result in future deductible amount, therefore give rise to deferred income tax asset.
	Under double declining method depreciation is charges at double the rate of straight line depreciation.

b	Warranty expenses are deductible when work is actually performed thus will result in future deductible amount
	and will give rise to deferred income tax assets.

c	Accelerated depreciation for tax purposes will result in future taxable income and will give rise to deferred income
	tax liability

d	Rent received in advance and taxable when received will result in future deductible amounts and therefore will give
	rise to deferred income tax assets.

e	Estimated loss from lawsuit will result in future deductible amount when actually paid, therefore will give rise to
	deferred income tax assets.

f	Liability for guarantees will result in future deductible amount, therefore will give rise to deferred income tax assets.

g	Installment method for sales purpose will result in future taxable amount, thus will give rise to deferred tax liability.

ekkarill92 answered 2 years ago

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