AmStore Incorporated sold some of its heavy machinery at a gain. AmStore used the straight-line method for financial accounting depreciation andimmediate expensing 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

The book-tax difference associated with the gain on the sale is temporary because it is due to a timing difference in when the depreciation expense is recognized for financial accounting compared to tax purposes. Additionally, the difference is unfavorable because the accumulated depreciation for tax reporting purposes is greater than the accumulated depreciation for financial accounting purposes, resulting in a higher tax basis and lower gain on the sale.

AmStore Incorporated Sold Some of Its Heavy Machinery at a Gain