Question

The records for Bosch Co. show this data for 2021:

• 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 2021.

• Interest received on tax-exempt Iowa State bonds was $9,000.

• The estimated warranty liability related to 2021 sales was $21,600. Repair costs under warranties during 2021 were $13,600. The remainder will be incurred in 2022.

• Pretax financial income is $700,000. The tax rate is 20%.

(a) Prepare a schedule starting with pretax financial income and compute taxable income.

(b) Prepare the journal entry to record income taxes for 2021.

Answer 1

Solution:

a)

Prepare a schedule starting with pretax financial income and compute taxable income

Particulars	Amount	amount
Pretax financial income		$700,000
Premanent difference:
Life insurance	$3,800
Less: Tax exemot interest	($9,000)	($5,200)
Temporary differences:
Warranties ($21,600 -$13,600)	$8,000
Less: Installment sales ($480,000 -$320,000)	($160,000)
Less: Extra depreciation [($300,000*14%) -($300,000/10 years)	($12,000)	($164,000)
Taxable income		$530,800

b)

Prepare the journal entry to record income taxes for 2021

Date	Account title and explanation	Debit	Credit
2021	Income tax expense[$106,160 -(434,400-$1,600)]	$138,960
	Deferred tax asset($8,000*20%)	$1,600
	Deferred tax liability[($160,000 +$12,000)*20%]		$34,400
	Income taxes payable($530,800*20%)		$106,160
	(To record income tax expenses)

Please give a Thumbs up ?. Thanks!!