11-28-12 Basics of the liability method

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PM 1: Basics of the liability method
Exercise: classifying permanent/temporary differences
Instructions
For this exercise, the participants should take a few minutes to read through the facts. The program
leaders then will begin explaining the solutions with the participants.
Facts
Complete the schedule below and be prepared to discuss your rationale for each answer. Some
items might be characterized correctly in more than one way.
Item
Permanent
Difference
Temporary
Difference
No
Difference
Accrued environmental contingent liability
Allowance for bad debts
Goodwill amortized for tax purposes over 15
years, not amortized for GAAP
Separately identifiable intangible assets with
an indefinite GAAP life, 15-year
amortization for tax
Interest on municipal bonds
Section 482 transfer pricing adjustment
imposed by the IRS during an audit
Tax deduction on nonqualified stock options
issued to employees
Meals and entertainment expenses
Pension and OPEB liabilities
Book R&D expense capitalized for tax
purposes
Net operating loss
TEI – Introduction to Financial Reporting for Taxes
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