Determine if the timing differences are temporary or permanent. Net income per books (after-tax) $205,050 Federal income tax per books 55,650 Tax-exempt interest income PERMANENT 4,500 MACRS depreciation in excess of straight-line depreciation used for TEMPORARY financial accounting purposes 7,200 Excess of capital loss over capital gains 9,400 Nondeductible meals and entertainment PERMANENT 5,500 Interest on loan to purchase tax-exempt bonds PERMANENT 1,100
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Determine if the timing differences are temporary or permanent.
|
Net income per books (after-tax) |
$205,050 |
|
|
Federal income tax per books |
55,650 |
|
|
Tax-exempt interest income PERMANENT |
4,500 |
|
|
MACRS TEMPORARY |
||
|
financial accounting purposes |
7,200 |
|
|
Excess of capital loss over |
9,400 |
|
|
Nondeductible meals and entertainment PERMANENT |
5,500 |
|
|
Interest on loan to purchase tax-exempt bonds PERMANENT |
1,100 |
Due to the differences between financial accounting and tax accounting there arises some differences in writing incomes and taxable income. In this situation, there arise two types of differences;
1) Permanent differences
2) Temporary differences
Permanent differences affect only the current year, while the temporary difference affects several years.
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