Question

In: Accounting

Assume Maple Corp. has just completed the third year of its existence (year 3).

 Assume Maple Corp. has just completed the third year of its existence (year 3). The table below indicates Maple's ending book inventory for each year and the additional $263A costs it was required to include in its ending inventory. Maple immediately expensed these costs for book purposes. In year 2, Maple sold all of its year 1 ending inventory, and in year 3 it sold all of its year 2 ending inventory.

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 Required:

 a. What book-tax difference associated with its inventory did Maple report in year 1? Was the difference favorable or unfavorable? Was it permanent or temporary?

 b. What book-tax difference associated with its inventory did Maple report in year 2? Was the difference favorable or unfavorable? Was it permanent or temporary?

 c. What book-tax difference associated with its inventory did Maple report in year 3? Was the difference favorable or unfavorable? Was it permanent or temporary?


Solutions

Expert Solution

Requirement A

Book-tax difference

$60,000

Was the difference favorable or unfavorable?

unfavorable

Was it permanent or temporary?

temporary

Note: Inventory Costs deducted for book purposes but included in ending inventory for tax.

Requirement B

Book-tax difference

$10,000

Was the difference favorable or unfavorable?

unfavorable

Was it permanent or temporary?

temporary

Note: It is the net of $70,000 unfavorable for amounts included in ending inventory for tax but deducted for book purposes for year 2 and $60,000 favorable adjustment for the reversal of the adjustment in Year 1. Book Difference = $70,000(Unfavorable) - $60,000(Favorable) = $10,000(Unfavorable)

Requirement C

Book-tax difference

$30,000

Was the difference favorable or unfavorable?

favorable

Was it permanent or temporary?

temporary

Note: It is the net of $40,000 unfavorable for amounts included in ending inventory for tax but deducted for book purposes for year 3 and $70,000 favorable adjustment for the reversal of the adjustment in Year 2. Book Difference = $40,000(Unfavorable) - $70,000(Favorable) = $30,000(favorable)


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