2018 Pretax Accounting Income: $600,000 2018 Municipal Bond Interest Income Reco

Question

2018 Pretax Accounting Income: $600,000
2018 Municipal Bond Interest Income Recognized in Pretax Accounting Income:  $10,000
2018 Warranty Expense of $40,000 for Accounting Purposes
2018 Actual Warranty Costs Incurred were $30,000
December 31, 2018 Warranty Liability is $10,000
2018 Installment Sales Included in Pretax Income Totaled $150,000
2018 Installment Sales for Tax Purposes Totaled $100,000
December 31, 2018 Installment Receivable was $50,000 (to be collected equally in 2019/20)
Federal Fines Included Against Pretax Income totaled $20,000
All Fixed Assets Purchased Prior to January 1, 2018 were Fully Depreciated at 12/31/17
Fixed Assets purchased on January 1, 2018 for $150,000.  Estimated Life is 4 Years
Depreciation for Accounting Purposes is Straight Line
Depreciation for Tax Purposes for 4 Year Assets is 50%, 30%, 10%, and 10%
Federal Tax Rate is 20%

What is the taxable income for the year ended December 31, 2018?

What is the current/deferred tax journal entry to necessary at December 31, 2018?

Explanation / Answer

Solution :

Tax schedule showing reconciliation between pre tax financial income, taxable income, deferred tax account Particulars Current Year Future Years Future Years FD - DTA FD - DTL Pretax accounting income $600,000.00 Permanent Differences Interest on muncipal bonds -$10,000.00 Federal fines $20,000.00 Temporary Differences Installment sales accured but not received -$50,000.00 $50,000.00 Extra depreciation allowed as per income tax over book depreciation ($150,000 * 50% - $150,000*25%) -$37,500.00 $37,500.00 Accrued warrant expense $10,000.00 -$10,000.00 Taxable Income $532,500.00 -$10,000.00 $87,500.00 Tax rate 20% 20% 20% Income tax payable $106,500.00 -$2,000.00 $17,500.00

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