Earl Company Uses the Accrual Method of Accounting

question 53

Multiple Choice

Earl Company uses the accrual method of accounting. Here is a reconciliation of Earl's allowance for bad debts for the current year.
Beginning allowance for bad debts $ 950,000
Actual write-offs of accounts receivable during the year (899,600 )
Addition to allowance 845,000
Ending allowance for bad debts $ 895,400
Because of the difference between the GAAP rules and the tax rules for accounting for bad debts, Earl Company has a:

• A) $54,600 permanent excess of book income over taxable income.
• B) $54,600 permanent excess of taxable income over book income.
• C) $54,600 temporary excess of taxable income over book income.
• D) $54,600 temporary excess of book income over taxable income.

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Definitions:

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