Question

Which of the following would result in a future taxable amount at the time of an originating temporary difference?

Question 2 options:

	A) Prepaid rental income will be included in pretax financial income when earned in a future period.
	B) Accelerated depreciation is deducted from income tax purposes and the straight-line method is used for pretax financial income.
	C) Interest on municipal bonds
	D) None of these items will result in a future taxable amount at the time of the originating temporary difference.

Answer 1

Solution: The Answer is

B) Accelerated depreciation is deducted from income tax purposes and the straight-line method is used for pretax financial income.

Explanation:

1) If we use accelerated depreciation for income tax purpose then depreciation expenses as per income tax will be more than straight-line method depreciation expense used for pretax financial income.

2) By accommodating more depreciation expenses in current year for income tax purpose will results in less tax payable for the year.

3) But by accommodating more depreciation expense in earlier years will result is less depreciation expense in future years which leads to more future taxable amount because of less depreciation expense.

4) Option A) Prepaid rental income will be included in pretax financial income when earned in a future period is Incorrect because even we received advance income, we will adjust the income as per matching concept to their respective years rather than recognize the advance income in the year of receipt. So, it would not result in a future taxable amount at the time of an originating temporary difference.

5) Option C) Interest on municipal bonds is Incorrect because interest will be recognize in the year in which it should be recognized. So, it would not result in a future taxable amount at the time of an originating temporary difference.

6) Option D) None of these items will result in a future taxable amount at the time of the originating temporary difference is Incorrect because Option B is Correct.