Income tax accounting methods and financial accounting methods differ in many ways.Which of the following tax law provisions are likely to create permanent differences between taxable income and financial (or book)income of a single entity?
I.Treatment of payment of penalties and fines.
II.Disallowance of 50% of the cost of business meals and entertainment.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Income tax accounting methods and financial accounting methods differ in many ways.Which of the following tax law provisions are likely to create permanent differences between taxable income and financial (or book)income of a single entity?
I.Treatment of payment of penalties and fines.
II.Disallowance of 50% of the cost of business meals and entertainment.
​
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Permanent differences arise when certain items are included in financial income but never in taxable income, or vice versa. Both penalties and fines (I) and the disallowance of 50% of business meals and entertainment (II) create permanent differences because they are never deductible for tax purposes, while they may be included in financial income calculations.

Income Tax Accounting Methods and Financial Accounting Methods Differ in Many