Question

A company records an unrealized loss on short-term securities. This would result in what type of difference and in what type of deferred income tax?

1) Temporary Liability
2) Temporary Asset
3) Permanent Liability
4) Permanent Asset

Answer 1

Recording an unrealized loss on short-term securities results in a temporary asset difference and a deferred income tax liability.

Step-by-step explanation:

When a company records an unrealized loss on short-term securities, it results in a temporary asset difference and a deferred income tax liability.

An unrealized loss on short-term securities means that the value of the securities has decreased but the company has not actually sold them yet. This creates a temporary asset difference because the recorded value of the securities on the balance sheet is higher than their actual market value.

The deferred income tax liability arises because the company has to account for the tax implications of this unrealized loss, even though it has not yet incurred a tax expense due to not selling the securities.