Final answer:
The question centers on identifying which listed item does not create a deductible temporary difference. The unrealized gains on available-for-sale securities do not create such a temporary difference because they are recognized for accounting purposes in other comprehensive income, but for tax purposes, they are only recognized when realized.
Step-by-step explanation:
The subject of this question is the accounting concept of taxable income and the identification of sources that can give rise to deductible temporary differences for tax purposes. Temporary differences are differences between the tax base of an asset or liability and its carrying amount in the financial statements. These differences will result in taxable or deductible amounts in future periods when the carrying amount of the asset or liability is recovered or settled.
When analyzing the sources of income provided regarding their ability to create deductible temporary differences, it is important to understand what each term means:
- Advance rent payments are payments received before the period to which they apply. For financial accounting purposes, the rent is recognized as income over time, but for tax purposes, it is often recognized when received, resulting in a temporary difference.
- Installment sales occur when income is recognized as payments are received rather than at the point of sale, leading to a temporary difference as the tax may be due when the sale occurs rather than when payments are made.
- Warranty liabilities involve estimating future expenses related to current sales; these liabilities create a temporary difference as the expense is recognized for tax purposes when incurred, not when estimated.
The item that does not create a deductible temporary difference is d) Unrealized gains on available-for-sale securities. These are changes in the fair value of securities that are not liquidated and hence the gains are not realized. The gains on these securities are recognized in other comprehensive income for accounting purposes but are not recognized for tax purposes until they are realized through sale or settlement.