Pratt Inc. reported $198,300 book depreciation on its financial statements and deducted $256,000 MACRS depreciation on its tax return. As a result, Pratt has a $57,800:
A) Unfavorable permanent book/tax difference
B) Favorable permanent book/tax difference
C) Unfavorable temporary book/tax difference
D) Favorable temporary book/tax difference

Question

Quizplus · Accepted Answer

This is a favorable temporary book/tax difference because the MACRS depreciation deduction on the tax return is greater than the book depreciation, reducing taxable income more in the current period. This difference will reverse in future periods as the total depreciation over the asset's life will be the same for both book and tax purposes.

Pratt Inc Reported $198,300 Book Depreciation on Its Financial Statements and and Deducted