- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 9. Analysis of Income Taxes
- Subject 2. Deferred Tax Assets and Liabilities
CFA Practice Question
Which of the following will not result in deferred taxes?
B. Different depreciation methods for the tax return and financial reporting
C. Different accounting methods for warranty expense for the tax return and financial reporting
D. Different accounting methods for service contracts for the tax return and financial reporting
A. Including municipal bond interest for financial reporting but not for the tax return
B. Different depreciation methods for the tax return and financial reporting
C. Different accounting methods for warranty expense for the tax return and financial reporting
D. Different accounting methods for service contracts for the tax return and financial reporting
Correct Answer: A
Municipal bond interest is recognized as income for financial reporting but not for the tax return, resulting in a permanent difference. Permanent differences do not result in deferred taxes.
User Contributed Comments 4
| User | Comment |
|---|---|
| kalps | Municipal bond interest is exempt I assume ? It results in a permanent difference |
| sarath | Municipal bond interest is recognized as income for financial reporting and not for tax return. So it results in permanent difference. No deferred taxes... |
| mirfanrana | permanent differences do not result in deffered taxes. |
| Khadria | However, capital gains that occur when the bond is sold or at the time of maturity (if the bond was bought at a discount) are not exempt from any taxes. |