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In: Accounting

Rehobeth Company's taxable income and other financial data for 2016 are presented below: Taxable income                          

  1. Rehobeth Company's taxable income and other financial data for 2016 are presented below:

Taxable income                                                                                                                                        $500,000 Interest received on municipal bonds                                                                                            75,000 Estimated bad debt expense (not written off)                                                                                  40,000 Cash expenditures for product warranty expenses                                                                         108,000 Product warranty expense for accounting purposes                                                                            142,000 Gross profit on installment sales for 2016                                                                                           180,000 Gross profit recognized in 2016 for tax purposes based on installment

sales in 2016                                                                                                                                             160,000

Required:

a. Calculate Rehobeth Company's 2016 pretax financial income.

b. For each item, explain why there is a difference, if any exists, between how it is treated for taxable income purposes and pretax financial income.

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