Permanent Differences

Question 1

What is the effect of a nontaxable revenue on income tax expense?

Answer 1

Income tax expense is not increased

Question 2

What general effect does income tax expense have on permanent differences?

Answer 2

The effect of a permanent difference on income tax expense is the same as its effect on the income tax liability for the period.

Question 3

Are current year or future permanent differences used in the current year tax accrual entry?

Answer 3

Current year differences are used

Question 4

Define “permanent difference”

Answer 4

An amount that appears in the tax return or income statement but never both

Question 5

List some common permanent differences

Answer 5

1. )Tax-Free Interest Income;
2. )Life Insurance Expense Premiums on key employee;
3. )Proceeds from life insurance on key employee;
4. )Dividends Received Deduction;
5. )Fines and penalties
6. )Depletion