E$18\mathrm{.}6$B $($LO $1,2)($Identify Temporary or Permanent Differences$)$ Listed below are items that are

commonly accounted for differently for financial reporting purposes than they are for tax purposes.

Instructions

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.

$3.$ A permanent difference.

Use the appropriate number to indicate your answer for each.

a$.\_\_\_\_\_\_\_\_$ For some assets, straight$-$line depreciation is used for tax purposes while double$-$declin$-$

ing 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$.\_\_\_\_\_\_\_\_$ The company uses the percentage of completion method to record revenue on long$-$

term contracts for financial reporting purposes, but the completed contract method is used for tax

purposes.

d$.\_\_\_\_\_\_\_\_$ Accelerated depreciation is used for tax purposes, and the straight$-$line depreciation

method is used for financial reporting purposes, for some equipment.

e$.\_\_\_\_\_\_\_\_$ A landlord collects some rents in advance. Rents received are taxable in the period when

they are received.

f$.\_\_\_\_\_\_\_\_$ Tax$-$exempt income.

g$.\_\_\_\_\_\_\_\_$ An SEC fine related to financial reporting irregularities.

h$.\_\_\_\_\_\_\_\_$ 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.

i$.\_\_\_\_\_\_\_\_$ A liability for a guarantee is accrued for financial reporting purposes.

j$.\_\_\_\_\_\_\_\_$ Installment sales are accounted for by the accrual method for financial reporting pur$-$

poses and the installment method for tax purposes