Final answer:
Permanent differences include interest on municipal bonds, life insurance proceeds on the death of insured executives, and potentially the premiums paid for life insurance on key officers. Warranty expense and bad debt expense, in excess of the amount deducted for tax purposes, are temporary differences, not permanent.
Step-by-step explanation:
The question pertains to identifying permanent differences between financial accounting and tax accounting. Permanent differences are items that are included in taxable income or financial income but will never be reversed in future periods, thus affecting only the period in which they are recognized and not the entity's deferred taxes.
- Interest on municipal bonds - Income from municipal bonds is generally not taxable, hence it is a permanent difference as it will never be included in taxable income.
- Life insurance proceeds on the death of an insured executive - These proceeds are typically received tax-free by the beneficiary corporation, making them a permanent difference as well.
- Premiums paid for life insurance on key officers (assuming the corporation is beneficiary) - These are not deductible for tax purposes, thus another permanent difference. However, depending on the specifics of the insurance policy, this could be subject to some interpretation.
The two items related to expenses - warranty expense and bad debt expense - in excess of the amount deducted for tax purposes represent temporary differences rather than permanent, as they may reverse in future periods.