Problem 19-4 (Part Level Submission) (a) Schedule of Pretax Financial Income and
ID: 2406249 • Letter: P
Question
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%.
Explanation / Answer
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)