AmStore Incorporated sold some of its heavy machinery at a gain. AmStore used the straight-line method for financial accounting depreciation and immediate expensing for tax cost recovery. If accumulated depreciation for financial accounting purposes is less than accumulated depreciation for tax reporting purposes, what is the nature of the book–tax difference associated with the gain on the sale? Multiple Choice Permanent; favorable. Permanent; unfavorable. Temporary; favorable. Temporary; unfavorable.

AmStore Incorporated sold some of its heavy machinery at a gain. AmStore used the straight-line method for financial accounting depreciation and immediate expensing for tax cost recovery. If accumulated depreciation for financial accounting purposes is less than accumulated depreciation for tax reporting purposes, what is the nature of the book–tax difference associated with the gain on the sale? Multiple Choice Permanent; favorable. Permanent; unfavorable. Temporary; favorable. Temporary; unfavorable.

SWFT Individual Income Taxes

43rd Edition

ISBN:9780357391365

Author:YOUNG

Publisher:YOUNG

Chapter18: Accounting Periods And Methods

Section: Chapter Questions

Problem 25DQ

See similar textbooks

Similar questions

Which of the following statements is false? A For tax purposes, companies can use the MACRS depreciation method. B When you change a depreciation estimate, such as salvage value, you need to make an adjustment to retained earnings. C If the expected future cash flow is less than the carrying amount, the asset is considered impaired. D If an impairment loss is recorded, depreciation must be recalculated since the book value changed.
Which of the following statements is false? A For tax purposes, companies can use the MACRS depreciation method. B When you change a depreciation estimate, such as salvage value, you need to make an adjustment to retained earnings. C If the expected future cash flow is less than the carrying amount, the asset is considered impaired. D If an impairment loss is recorded, depreciation must be recalculated since the book value changed. The answer A is wrong
Discuss the difference between the straight-line method of depreciation and the accelerated methods. Why do companies use different depreciation methods for tax reporting and financial reporting?
As explained in this chapter, accounting theory allows firms to choose a depreciation method from several equally acceptable alternatives to allocate the cost of a long-term asset to expense over the useful life of the asset. In practice, however, most organizations use the straight-line method of depreciation for financial statement presentation and the Modified Accelerated Cost Recovery System (MACRS) for tax reporting purposes because the Internal Revenue Code allows firms to use an accelerated depreciation method on their tax returns, instead of the straight-line method they report under GAAP. Discuss why a company would choose to use straight-line deprecation for financial reporting purposes and an accelerated method for tax purposes. Speculate on why the tax code might allow firms to accelerate depreciation for investments in productive resources.
Which of the following usually results in an increase in a deferred tax asset? A) Accelerated depreciation for tax reporting and straight-line depreciation for financial reporting. B) Prepaid insurance. C) Subscriptions delivered for which customers had paid in advance. D) None of these answer choices are correct.
No deferred tax asset was recognized in the Year 1 financial statements by the Chaise Company when a loss from discontinued segments was carried forward for tax purposes. Chaise had no temporary differences. The tax benefit of the loss carried forward reduced current taxes payable on Year 2 continuing operations.The Year 2 financial statements would include the tax benefit from the loss brought forward in Gain or loss from discontinued segments. Income from continuing operations. Cumulative effect of accounting changes. Owners' equity.
When accounting standards require an asset to be expensed immediately but tax rulesrequire the item to be capitalized and amortized, the company will most likely record:A . a deferred tax asset.B . a deferred tax liability.C . no deferred tax asset or liability.
ABC Corp calculated that it had sustained a deferred tax asset of $450,000 in respect of a tax loss and deductible temporary difference of $2.25 million but it had not recognized any such asset in the balance sheet. During the year, a business was injected to the company by the major shareholder and the company began to derive taxable profit to offset with the loss brought forward. Required: Discuss the implication of the current development on ABC’s deferred tax asset. Suggest journal entries to effect the implication in (1). If the tax rate is increased to 30%, discuss and suggest journal entries.
Poston Company uses an accelerated depreciation method for tax purposes rather than straight-line depreciation for a new asset acquisition. Which of the following choices correctly shows when the majority of depreciation would be taken (early or late in the asset's life), when most of the tax savings occur (early or late in the asset's life), and which depreciation method would have the higher present value? When Majority of Depreciation is Taken When Majority of Tax Savings Occur Depreciation Method with Higher Present Value A. Early in life Early in life Accelerated B. Early in life Early in life Straight-line C. Early in life Late in life Straight-line D. Late in life Late in life Straight-line E. Late in life Early in life Accelerated Multiple Choice Choice A Choice B Choice C Choice D Choice E
True or False: For a given depreciable asset, a company may not use a different depreciation method for income tax purposes than for financial reporting purposes. True False A) True or False: In accounting, depreciation represents the decrease in a long-term tangible asset’s fair market value over time. True False B) True or False: Regardless of the depreciation method used, the book value of a tangible long-term asset at the end of its useful life should equal the asset’s residual value.
Many companies use an accelerated depreciation method because: A. It is required by the tax code.B. It is required by financial reporting rules.C. It yields larger depreciation expense in the early years of an asset's life.D. It yields a higher income in the early years of the asset's useful life.E. The results are identical to straight-line depreciation.
ABC Corp calculated that it had sustained a deferred tax asset of $450,000 in respect of a tax loss and deductible temporary difference of $2.25 million but it had not recognised any such asset in the balance sheet. During the year, a business was injected to the company by themajor shareholder and the company began to derive taxable profit to offset with the loss brought forward. Required:1. Discuss the implication of the current development on ABC’s deferred tax asset.2. Suggest journal entries to effect the implication in (1).3. If the tax rate is increased to 30%, discuss and suggest journal entries.