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 an entity?
I.The cost of certain property is allowed to be deducted in the year of acquisition rather than through regular depreciation methods.
II.Tax depreciation is computed over a statutory life rather than the asset's useful life.

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 an entity?
I.The cost of certain property is allowed to be deducted in the year of acquisition rather than through regular depreciation methods.
II.Tax depreciation is computed over a statutory life rather than the asset's useful life.
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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 from items that are recognized for financial accounting purposes but never for tax purposes, or vice versa. Both statements describe timing differences, which are temporary, not permanent.

Income Tax Accounting Methods and Financial Accounting Methods Differ in Many