For each question below, you must determine whether the answer involves either 1, 2, or 3.

1. a temporary difference that will result in future deductible amounts which will give rise to a deferred income tax asset.

2. a temporary difference that will result in future taxable amounts which will give rise to a deferred income tax liability.

3. a permanent difference.

Questions:

1. The allowable MACS depreciation method is used for tax purposes and the allowable straight-line depreciation method is used for book (financial reporting) purposes for a company's equipment in year 1.
2. A building owner collects rent monies in advance. Rents received are taxable in the period they are received per the Tax Code.
3. A company incurred interest expense related to monies they borrowed in obtaining tax exempt income.
4. The cost of warranties are estimated and accrued for book purposes.
5. Interest revenue has been recorded on the books for an investment in a tax exempt municipal bond.
6. Proceeds are received from a life insurance policy that had been taken out on a key officer (key man) upon her death. The company carries policies on all key employees such as the CEO, COO, and CFO.
7. The tax return reports a deduction for the Dividends Received Deduction of 50% due to a dividend received from an investment in a US corporation (domestic = housed in the US). The cost method is used in accounting for the related investments for financial reporting purposes.
8. A corporation had estimated losses (loss contingency) froma pending lawsuit accrued on the books. The losses are tax deductible only in the period the liability (created from the accrual for book purposes) is settled.
9. Expenses for stock options are accrued on the books (financial reporting) purposes.