Permanent and reversible differences
Explain whether each of the following independent situations should be treated as a reversible difference or a permanent difference.
1. For accounting purposes, Barley Corp. reports revenue from instalment sales on the accrual basis. For income tax purposes it reports the revenues by the instalment method, deferring recognition of gross profit until cash is collected.
2. Pre-tax accounting income and taxable income differ because dividends received from Canadian corporations were not included in Rye Corp.'s taxable income, while 100% of the dividends received were included as revenue for financial statement purposes.
3. Flax Corp.'s estimated warranty costs (covering a three-year period) are expensed for accounting purposes at the time of sale, but deducted for income tax purposes only when paid.

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The Answer of Permanent and reversible differences
Explain whether each of the following independent situations should be treated as a reversible difference or a permanent difference.
1. For accounting purposes, Barley Corp. reports revenue from instalment sales on the accrual basis. For income tax purposes it reports the revenues by the instalment method, deferring recognition of gross profit until cash is collected.
2. Pre-tax accounting income and taxable income differ because dividends received from Canadian corporations were not included in Rye Corp.'s taxable income, while 100% of the dividends received were included as revenue for financial statement purposes.
3. Flax Corp.'s estimated warranty costs (covering a three-year period) are expensed for accounting purposes at the time of sale, but deducted for income tax purposes only when paid.

Permanent and Reversible Differences