1. For each item below, indicate whether it involves:
(1) A temporary difference that will result in future deductible amounts and, therefore, will usually
give rise to a deferred income tax asset.
(2) A temporary difference that will result in future taxable amounts and, therefore, will usually give
rise to a deferred income tax liability.
Use the appropriate number to indicate your answer for each.
(a) For some assets, straight-line depreciation is used for tax purposes while double-declining
balance method is used for financial reporting purposes.
(b) Warranty expenses are accrued when the sale is made, but cannot be deducted until the
work is actually performed.
(c) Accelerated depreciation for tax purposes, and the straight-line depreciation method is used
for financial reporting purposes for some equipment.
(d) A landlord collects some rents in advance. Rents received are taxable in the period when
they are received.
(e) For financial reporting purposes, an estimated loss from a lawsuit is accrued. The tax return
will not report a deduction until an amount is paid.
(f) A liability for a guarantee is accrued for financial reporting purposes.
(g) Installment sales are accounted for by the accrual method for financial reporting purposes
and the installment method for tax purposes.