Milton Manufacturing manufactures and sells ornamental statues.Because of good styling and marketing,sales have grown briskly.Milton has no pre-existing deferred tax liability.During 20X3,the following transactions occurred: 1.On January 1,20,000 new shares of common stock were sold at $100 per share.
2)Half of the proceeds from the stock sale were immediately invested in tax-free bonds yielding 8% per annum.The bonds were held throughout the year,resulting in interest revenue of $1,000,000 × .08 = $80,000.
3)Sales for the year were $9,000,000,with expenses of $4,300,000 reported under GAAP (not including income tax expense).
4)Tax depreciation exceeded depreciation included in item 3 above by $500,000.
What is the total amount of the permanent difference?
A)$-0-.
B)$80,000.
C)$500,000.
D)$85,000.
E)$580,000.

Question

Quizplus · Accepted Answer

The permanent difference is the difference between taxable income and pre-tax financial income that will never reverse. In this case, the only item that qualifies as a permanent difference is the tax-exempt interest income earned on the tax-free bonds, which is $80,000. None of the other items listed would qualify as a permanent difference.

Milton Manufacturing Manufactures and Sells Ornamental Statues