Question

In reconciling net income to taxable income, interest earned on municipal bonds is: Multiple Choice Ignored. A temporary difference. A reversing difference. A permanent difference.

Answer 1

Answer:

A permanent difference.

Explanation:

In accounting, a permanent difference refers to a transaction that is reported differently for financial purposes than for taxation purposes. Interest earned from municipal bonds increases the company's revenue, but since it is not taxed (at least not subject to federal taxes), it doesn't increase the taxable revenue of the company.