Wave Corporation is determining its income tax liability.It has one machine that cost $30,000 with a 4-year life and no salvage value.Wave is using an accelerated depreciation method for tax purposes.For accounting purposes, Wave has decided to use the straight-line method.Which of the following statements is true?
A) There will be a temporary difference between accounting income and income for tax purposes.
B) There will be a permanent difference between accounting income and income for tax purposes.
C) Wave's accounting income and income for tax purposes will be equal.
D) Accounting income will be lower than income for tax purposes, especially in the early years of the asset's life.

Question

Quizplus · Accepted Answer

Since Wave is using different methods of depreciation for tax and accounting purposes, there will be a difference between the amount of depreciation expense recognized for tax purposes and the amount recognized for accounting purposes. This will result in a temporary difference between accounting income and income for tax purposes until the end of the machine's useful life, when the total depreciation expense recognized will be the same under both methods.

Wave Corporation Is Determining Its Income Tax Liability