SOFA-CFE · Question #345
Events recognized in the financial statements that do not have tax consequences are commonly referred to as:
The correct answer is A. permanent differences. Permanent differences are items recognized in financial statements (under GAAP or IFRS) that never affect taxable income - they create a gap between book income and tax income that never reverses, such as tax-exempt municipal bond interest or non-deductible fines. Option B…
Question
Events recognized in the financial statements that do not have tax consequences are commonly referred to as:
Options
- Apermanent differences
- BTaxed discount
- Cpaid differences
- DUnearned premium reserves
How the community answered
(49 responses)- A73% (36)
- B14% (7)
- C4% (2)
- D8% (4)
Explanation
Permanent differences are items recognized in financial statements (under GAAP or IFRS) that never affect taxable income - they create a gap between book income and tax income that never reverses, such as tax-exempt municipal bond interest or non-deductible fines. Option B ("taxed discount") and C ("paid differences") are not standard accounting terms and are fabricated distractors. Option D ("unearned premium reserves") is an insurance industry liability concept, entirely unrelated to tax accounting.
Memory tip: Think "permanent = never crosses over" - unlike temporary differences (which reverse over time and create deferred tax assets/liabilities), permanent differences stay on one side of the book-tax divide forever.
Community Discussion
No community discussion yet for this question.