Asked by Nimah Siddiqui on Jun 25, 2024
Verified
Permanent differences between pretax financial income and taxable income result when
A) a company engages in fraudulent activity
B) the SEC imposes a penalty on a company
C) the IRS imposes interest on a late payment
D) the FTC changes how an advertisement can be shown on TV even though the company has paid for the ad
Permanent Differences
Differences between taxable income and accounting income that are not temporary and hence do not reverse over time.
Pretax Financial Income
The total earnings of a company before any taxes have been deducted.
Taxable Income
The amount of an individual's or corporation's income that is subject to income tax, after exemptions, deductions, and allowances are factored in.
- Discern the influence of permanent discrepancies on financial and taxable income outcomes.
Verified Answer
SG
sonal guptaJun 30, 2024
Final Answer :
B
Explanation :
Permanent differences arise when there is an income or expense item that is included in either the financial income or the taxable income but not in both, and this difference will not reverse in the future. SEC penalties are an example of a permanent difference because they are included in financial income but are not deductible for tax purposes.
Learning Objectives
- Discern the influence of permanent discrepancies on financial and taxable income outcomes.