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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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A permanent difference is a difference between pretax financial income and taxable income in an accounting period that will never reverse in a later period. Which of the following is not an example of a permanent difference?

  1. a. fine for air pollution
  2. b. percentage depletion in excess of cost depletion on a wasting asset
  3. c. interest on municipal bonds
  4. d. rent received in advance

To determine

Determine the component of current income that is not reported on the income statement net of tax effects.

Explanation

Permanent Difference: Permanent difference refers to those differences that are caused by the transactions and events that exist under the law, which will never affect taxable income or taxes payable. This difference will never be eliminated.

Explanation for the options:

a. Fine for air pollution  are the expense that are related to the violation of law. Thus, this option is incorrect.

b. Percentage depletion in excess of cost depletion is the deductions that are allowed for income tax purposes and are not qualified as an expense under GAAP. Thus, this option is incorrect...

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