Taxation

In January 2010, PGW established an allowance for uncollectible accounts (bad CRITICAL THINKING debt reserve) of $110,000 on its books and increased the allowance by $160,000 during the year. As a result of a client’s bankruptcy, PGW decreased the allowance by $90,000 in November 2010. PGW deducted the $270,000 of increases to the allowance on its 2010 income statement, but was not allowed to deduct that amount on its tax return. On its 2010 tax return, the corporation was allowed to deduct the $90,000 actual loss sustained because of its client’s bankruptcy. On its financial statements, PGW treated the $270,000 increase in the bad debt reserve as an expense that gave rise to a temporary difference. On its 2010 tax return, PGW took a $90,000 deduction for bad debt expense.

How is this information reported on Schedule M–3?

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