AmStore Inc.sold some of its heavy machinery at a gain.AmStore used the straight-line method for financial accounting depreciation and MACRS for tax cost recovery.If accumulated depreciation for financial accounting purposes is less than accumulated depreciation for tax reporting purposes, what is the nature of the book-tax difference associated with the gain on the sale?

Question

Quizplus · Accepted Answer

Since accumulated depreciation for financial accounting purposes is less than the accumulated depreciation for tax reporting purposes, this indicates that tax cost recovery was greater than financial accounting depreciation. Therefore, the book-tax difference is temporary and unfavorable. This is because the company has deferred tax liability and will owe more taxes in the future when they recover the excess tax savings.