Which of the following is MOST LIKELY correct when there are (nonreversing) permanent differences between taxable...
Which of the following is MOST LIKELY correct when there are (nonreversing) permanent differences between taxable and pre-tax income?
Group of answer choices
A) statutory tax rate ≠ effective tax rate
B) tax expense = pre-tax income × statutory rate
C) tax expense = taxes payable
Homework Answers
Answer:
Option C is most likely correct in case of permanent differences, because in that case no Deferred tax assets or liability arises and Tax expenses becomes the amount of taxes payable by the organisation.
In such cases statutory tax rates are almost equal to effective tax rates and tax expenses are not equal to pretax income * Statutory rate becuase to calculate tax expense pre tax income permanent differences are added back and than multiplied by tax rate to calculate tax expense.
So correct answer is Option C.
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