Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account. This basis difference is characterized as:

Question

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The difference in the allowance for bad debts account results in a lower book basis of net accounts receivable compared to the tax basis. This creates a deductible temporary difference because the company will eventually recognize the bad debts expense and reduce their taxable income in the future when they write off the bad debts.

Davison Company Determined That the Book Basis of Its Net