WILL RATE. The records for Bosch Co. show this data for 2018: Pretax financial i
ID: 2550499 • Letter: W
Question
WILL RATE.
The records for Bosch Co. show this data for 2018:
Pretax financial income is $700,000. The tax rate is 30%.
Prepare a schedule starting with pretax financial income and compute taxable income.
Prepare the journal entry to record income taxes for 2018.
Gross profit on installment sales recorded on the books was $480,000. Gross profit from collections of installment receivables was $320,000. Life insurance on officers was $3,800. Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Bosch may deduct 14% for 2018. Interest received on tax exempt Iowa State bonds was $9,000. The estimated warranty liability related to 2018 sales was $21,600. Repair costs under warranties during 2018 were $13,600. The remainder will be incurred in 2019.Pretax financial income is $700,000. The tax rate is 30%.
Prepare a schedule starting with pretax financial income and compute taxable income.
Prepare the journal entry to record income taxes for 2018.
Explanation / Answer
(a)Computation of taxable income
Pretax financial income $ 7,00,000
Permanent differences
Life insurance $ 3,800
Tax-exempt interest ($ 9,000)
Temporary differences
Installment sales ($ 480000 - $ 320000) ( $ 1,60,000)
Extra depreciation ($ 42,000 – $30,000) ( $ 12,000)
Warranties ($21,600 – $13,600) $ 8,000
Taxable income $ 5,30,800
(b) Journal entry to record income taxes for 2018.
Income Tax Expense A/c Dr $ 2,08,440
Deferred Tax Asset A/c Dr $ 2,400
(30% × $8,000)
To Deferred Tax Liability Cr $ 51,600
(30% × $ 172000)
To Income Taxes Payable Cr $ 1,59,240
(30% × $ 530800)
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