Wave Corporation Is Determining Its Income Tax Liability

question 110

Multiple Choice

Wave Corporation is determining its income tax liability.It has one machine that cost $30,000 with a 4-year life and no salvage value.Wave is using an accelerated depreciation method for tax purposes.For accounting purposes, Wave has decided to use the straight-line method.Which of the following statements is true?

• A) There will be a temporary difference between accounting income and income for tax purposes.
• B) There will be a permanent difference between accounting income and income for tax purposes.
• C) Wave's accounting income and income for tax purposes will be equal.
• D) Accounting income will be lower than income for tax purposes, especially in the early years of the asset's life.

---

Definitions:

Seal

A formal mode of expressing the intention to be bound by a written promise or agreement. This expression usually takes the form of signing or affixing a wax or gummed paper wafer beside the signature, or making an engraved impression on the document itself.

Privity of Estate

A legal concept that refers to the relationship between parties whose interests in a piece of property are intertwined.

Privity of Contract

A principle stating that only parties to a contract have the right to sue or be sued under the terms of the contract.

Privity of Reversion

A legal concept relating to the rights of individuals who have a future interest in property currently possessed by another.