Deferred income taxes: temporary or permanent differenceThe asset-liability approach for recording deferred income
taxes is an integral part of generally accepted accounting principles.Instructionsa. Indicate whether each of the following independent
situations should be treated as a temporary difference or as a permanent
difference and explain why.1. A company properly uses the equity method to account for
its 30% investment in another company. The investee pays dividends that are
about 10% of its annual earnings.
2. A company reports a gain on an involuntary conversion of
a nonmonetary asset to a monetary asset. The company elects to replace the
property within the statutory period using the total proceeds so the gain is
not reported on the current year’s tax return.