Davison Company determined that the book basis of its net accounts receivable was less than the tax basis of its net accounts receivable by $800,000 due to a difference in the allowance for bad debts account. This basis difference is characterized as: A. Deductible temporary differenceB. Taxable temporary differenceC. Favorable permanent differenceD. Unfavorable permanent difference
Answer: the correct answer is A. Deductible temporary difference
Explanation:
The future tax deduction created by the write-off of bad debts will create a future tax benefit and will be recorded on the balance sheet as a deferred tax asset.
