Deitle Inc. manufactures small appliances. This year, Deitle capitalized $3,679,000 indirect costs to inventory for book purposes and $3,865,000 indirect costs to inventory for tax purposes. The consequence of the different accounting methods is a $186,000:
A) Permanent unfavorable book/tax difference
B) Permanent favorable book/tax difference
C) Temporary unfavorable book/tax difference
D) Temporary favorable book/tax difference

Question

Quizplus · Accepted Answer

The difference in the amount of indirect costs capitalized to inventory for book and tax purposes creates a temporary unfavorable book/tax difference, meaning that the difference will eventually reverse in future years when the capitalized costs are expensed for tax purposes, resulting in lower taxable income.