Question

Brief Exercise 105

The records for Bosch Co. show this data for 2018:

		Pretax financial income is $740,000. The tax rate is 30%. PART 1: Schedule of Pretax Financial Income and Taxable Income for 2018 Pretax Financial Income $ Permanent Differences Life Insurance $ Tax exempt Interest $ Tempory Differences Installment Sales $ Extra Depreciation $ Warranties $ Taxable Income $ PART 2: Prepare the Jounal entry to record taxes for 2018 Income Tax Expense Deferred tax asset Deferred tax liability Income tax payable

Answer 1

In the given question the amounts are missing for calculation of Taxable Income

Let me assume numbers as follows

1)Life Insurance Expense = $3800

2)Interest on Tax exempt bonds = $9000

3)Gross profit difference on installment sales = $140000

4)Extra Depreciation =$12000

5)Excess Warranty Accrual over Actual costs = $8000

Computation of Taxable Income:

Pretax financial income	$740,000
Add back: Permanent Difference: Nondeductible life insurance expense on officers	$3,800
Deduct: Permanent Difference: Interest received on tax-exempt bonds	$9,000
Adjusted Pretax financial income	$740,000 + $3,800 - $9,000 = $734,800
Deduct: Timing Difference: Gross Profit Difference on Installment Sales	$140,000
Deduct: Timing Difference: Tax over book depreciation for machinery	$12,000
Add back: Timing Difference: Warranty liability accrual over actual repair costs	$8,000
Taxable Income	$734,800 - $140,000 - $12,000 + $8,000 = $590,800

Journal Entry to record taxes for 2018:

Particulars	Debit($)	Credit($)
Income Tax Expense(734800*20/100)	146960
To Income Tax Payable(590800*20/100)		118160
To Deferred Income Taxes Payable		28800
($140000+12000-8000 = $144000*20/100)