Question

 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.

 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?

Answer 1

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)