Final answer:
Unrealized gains on available-for-sale securities do not involve a temporary difference for income tax allocation because they are typically recognized for accounting purposes when realized and do not result in taxable income until then.
Step-by-step explanation:
To determine which scenario does not involve a temporary difference for purposes of income tax allocation, let's first understand what temporary differences are. A temporary difference arises when there is a discrepancy between the book income and taxable income under the tax laws due to timing or recognition of certain revenues and expenses. These differences resolve over time, which distinguishes them from permanent differences that never reverse.
- Depreciation on property, plant, and equipment frequently differs between accounting and tax reporting, as tax laws often allow for accelerated depreciation. This is a temporary difference.
- Accrued expenses might not be deductible for tax purposes until actually paid. This also represents a temporary difference.
- Prepaid income is taxed when received, but recognized in financial statements over time. Another example of a temporary difference.
- Amortization of intangible assets can vary between financial reporting and tax bases, leading to temporary differences.
- Unrealized gains on available-for-sale securities do not create a temporary difference because these are typically recognized for accounting purposes when gains and losses are realized. Therefore, except under certain circumstances where tax rules have specific recognition mechanics, unrealized gains do not cause a temporary difference.
Answer: e) Unrealized gains on available-for-sale securities is the correct option because it commonly does not lead to temporary differences for tax purposes, unless specific tax laws state otherwise.