CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Which of the following items would have a tax consequence for financial accounting purposes?

I. Fines paid for law violations
II. Product warranty liabilities
III. Life insurance proceeds received (co. is beneficiary)
A. II only
B. II and III
C. I and II
Explanation: Fines paid for law violations are never deductible for tax purposes, and life insurance proceeds where the company is the beneficiary are never taxed. Therefore, these are permanent differences and do not have tax consequences. Differences due to warranty expenses, however, will create temporary differences and do have tax consequences.

User Contributed Comments 6

User Comment
keithinny how are we supposed to know if Life insurance is taxed or not ?
cahiz84 In the U.S., for example, interest income on tax-exempt bonds, premiums paid on officer's life insurance, and amortization of goodwill (in some cases) are included in financial statements but are never reported on the tax return.

What does officer's life insurance means?
Joel1980 CEO, CFO etc...
chcarnes A company will take out life insurance on its officers/ management board in the event of their death. The premiums and potential payout are tax exempt.
JChewL2 multibillion tax settlements are tax deductible for banks. tax write offs. a fine may not be a settlement, however
LoCo83 I might be the only one who thinks this question is worded poorly, but according to their explanation, I would qualify legal fines that are never tax deductible as having a tax consequence... because they can't be deducted.

Am I just reading this too late at night?
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