medium · Financial Accounting liabilities-bonds-payable
Highland Foods receives $50,000 in interest from municipal bonds. Under US GAAP, this interest is included in pretax book income, but it is exempt from federal income tax.
What is the effect of this interest on the company's financial statements?
- It creates a deferred tax liability.
- It reduces the effective tax rate.
- It is recorded as a change in accounting principle.
- It creates a deferred tax asset.
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