Problem 194 Part Level Submission a Schedule of Pretax Finan

Problem 19-4 (Part Level Submission)

(a)

Schedule of Pretax Financial Income
and Taxable Income for 2014

SHOW LIST OF ACCOUNTS

SHOW SOLUTION

SHOW ANSWER

LINK TO TEXT

(b)

Account Titles and Explanation

Debit

Credit

Problem 19-4 (Part Level Submission) The accounting records of Shinault Inc. show the following data for 2014. 1. Life insurance expense on officers was $8,400. 2. Equipment was acquired in early January for $323,700. Straight-line depreciation over a 5-year life is used, with no salvage value. For tax purposes, Shinault used a 30% rate to calculate depreciation. 3. Interest revenue on State of New York bonds totaled $5,900. 4. Product warranties were estimated to be $59,500 in 2014. Actual repair and labor costs related to the warranties in 2014 were $17,400. The remainder is estimated to be paid evenly in 2015 and 2016. 5. Gross profit on an accrual basis was $148,600. For tax purposes, $80,300 was recorded on the installment-sales method. 6. Fines incurred for pollution violations were $6,700. 7. Pretax financial income was $803,000. The tax rate is 40%.

Solution

Answer a. Schedule of Pretax Financial Income and Taxable Income For 2014 Pretax Financial Income    803,000.00 Permanent Differences: Bond Interest Revenue      (5,900.00) Pollution Fines        6,700.00    803,800.00 Temporary Differnces: Depreciation Expense    (32,370.00) Installment Sales ($148,600 - $80,300)    (68,300.00) Warranty Expenses ($59,500 - $17,400)      42,100.00 Taxable Income    745,230.00 Depreciation For Books - $323,700 / 5 Years      64,740.00 Depreciation for Tax - $323,700 X 30%      97,110.00 Difference      32,370.00 Answer b. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 Income Tax Expense    321,520.00 $803,800 X 40% Deferred Tax Asset      16,840.00 $42,100 X 40%    Deferred Tax Liability      40,268.00 ($32,370 + $68,300) X 40%    Income Tax Payable    298,092.00 $745,230 X 40% (To record the income tax expense)