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 differenceassociated with the gain on the sale?

Question

Quizplus · Accepted Answer

The book-tax difference associated with the gain on the sale is temporary and unfavorable because the accumulated depreciation for financial accounting purposes is less than accumulated depreciation for tax reporting purposes. This means that the company will have to pay more taxes in the current period, but will be able to recover the tax cost-recovery deductions in future periods. Therefore, the difference is considered temporary and unfavorable.