Asked by Larry Egerton on Jul 08, 2024
Verified
Which of the following transactions would not create a temporary difference?
A) The cash payment to acquire a three-year insurance policy.
B) The accrual of warranty expense.
C) The accrual of bad debts expense.
D) The cash collection of interest earned on a municipal bonD.
Municipal Bond
A debt security issued by municipalities to finance its capital expenditures, often tax-exempt for investors.
Warranty Expense
Costs incurred by a company due to repairing or replacing products under warranty.
Bad Debts Expense
An expense reported on the income statement, representing the money lost by a business from non-recoverable credit sales.
- Discern the differences between temporary and permanent variations and their repercussions on taxable income.
Verified Answer
YR
yasmin rivasJul 10, 2024
Final Answer :
D
Explanation :
The cash collection of interest earned on a municipal bond would not create a temporary difference because it does not involve timing differences between book and tax accounting. The other options involve timing differences that may create temporary differences between the book and tax basis of assets or liabilities.
Learning Objectives
- Discern the differences between temporary and permanent variations and their repercussions on taxable income.
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