An accrual-basis C corporation that prepared its financial statements based on GAAP recorded $800,000 of bad debt expense. The total amount of bad debts that actually became worthless was $930,000. In respect to bad debt expense, what type of disclosure should the corporation show on Schedule M-3

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Isabella Huber

Business

13 December, 04:02

An accrual-basis C corporation that prepared its financial statements based on GAAP recorded $800,000 of bad debt expense. The total amount of bad debts that actually became worthless was $930,000. In respect to bad debt expense, what type of disclosure should the corporation show on Schedule M-3

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Coby Woods · Answer 1

Complete Question:

A. A permanent bad debt expense difference of $130,000.

B. A temporary difference in which book deductions exceed tax deductions by $130,000.

C. A temporary difference in which tax deductions exceed book deductions by $130,000.

D. No difference between bad debt expense per income statement and deduction per tax return.

Answer:

C. A temporary difference in which tax deductions exceed book deductions by $130,000.

Explanation:

As the book bad debt was $800,000 and the actual bad debt was $930,000. One can clearly see a difference of $130,000 and this is the amount which the book bad debt is increasing by. In this case of tax, bad debts becomes worthless in the year they are announced collectible.