Question

                                          Exceptional Manufacturing, Inc.

As the financial accountant assigned to year-end federal tax work for the annual report for 2017, you have obtained the following information about Exceptional:

INCOME STATEMENT (in thousands, expenses are shown in parentheses)

Revenue                                                                                                             $475,000

Costs of goods sold                                                                                            (200,000)

Gross profit                                                                                                          $275,000

Marketing, administrative and research expenses                                     (185,000)

Interest income on investments                                                                        5,000

Interest expense                                                                                                  (12,000)

Other income/expense                                                                                        15,000

Income before income taxes                                                                              $98,000

OTHER INFORMATION (in thousands, expenses show in parentheses)

               Depreciation expenses, reflected above (in cost of goods sold

                     and Marketing, administrative and research                               (18,000)

                Depreciation on the tax return (in total)                                            (22,000)

                To be overly clear, tax depreciation is $4,000 higher.

                Interest income on municipal bonds (included in interest “income

                        on investments”)                                                                                   4,000

                 Exceptional received an advance payment of $22,000 from a customer for

                 work that will be done next year. Under tax rules, the $22,000 is taxable

                  this year.

                  Tax credits from research activities (directly reduces tax payable)     750

                 Gross profit earned in a tax-free zone                                                        31,000

                      (Revenue, less cost of goods sold for an operation in a tax

                       free zone, not taxable now and never will be.)

             The federal tax rate is 21%.

Your assignment: Calculate the federal income tax provision/expense and prepare the entry to record the provision (including expense, income taxes payable and deferred income taxes). Calculate the effective tax rate.

               

Answer 1