Question

WILL RATE.

The records for Bosch Co. show this data 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.

Answer 1

(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)