Final answer:
The accounting basis for lawsuit accruals is reflected as carrying cost, and they often result in a taxable temporary difference as they're recognized for accounting purposes before being deductible for tax purposes. Statement C is incorrect, as the tax basis is not always the carrying amount. Amounts are expensed for tax purposes when the lawsuit settlement becomes legally payable.
Step-by-step explanation:
The statements about the accounting basis and tax basis of lawsuit accruals address differences between financial accounting and tax reporting. Statement A suggests that the accounting basis for a lawsuit accrual is its carrying cost, which is generally true. Lawsuit accruals are recognized in financial accounting when it becomes probable that a liability has been incurred and the amount can be reasonably estimated, which is then reflected as a carrying cost on the balance sheet.
Statement B indicates that lawsuit accruals frequently result in a taxable temporary difference. This is often the case because for tax purposes, expenses may not be deductible until economic performance occurs, which generally means when the payment is made or becomes due. This creates a temporary difference between the accounting and tax bases because the accrual may be recognized for accounting purposes before it's deductible for tax purposes.
Statement C is incorrect because the tax basis of a lawsuit accrual is not always the carrying amount on the statement of financial position. Instead, the tax basis is dependent on when the tax code allows the accrual to be deductible.
Statement D is correct as under most tax codes, amounts are expensed for tax purposes at the time the lawsuit settlement becomes legally payable, meaning the obligation is recognized only when it becomes enforceable under law.