Question 9 The accounting records of Shinault Inc. show the following data for 2
ID: 2452191 • Letter: Q
Question
Question 9
The accounting records of Shinault Inc. show the following data for 2014. Life insurance expense on officers was $9,700. Equipment was acquired in early January for $336,100. 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. Interest revenue on State of New York bonds totaled $4,400. Product warranties were estimated to be $57,400 in 2014. Actual repair and labor costs related to the warranties in 2014 were $16,700. The remainder is estimated to be paid evenly in 2015 and 2016. Gross profit on an accrual basis was $112,400. For tax purposes, $77,200 was recorded on the installment-sales method. Fines incurred for pollution violations were $5,200. Pretax financial income was $800,800. The tax rate is 30%. Prepare a schedule starting with pretax financial income in 2014 and ending with taxable income in 2014. Prepare the journal entry for 2014 to record income taxes payable, income tax expense, and deferred income taxes.Explanation / Answer
Particulars Amount
Pre tax financial Income = $800,800
Permanent Difference =
Add:
Life Insurance Expense = $9,700
Pollution Fines = $5,200
Total = $815,700
Less:
Interest Revenue on New York On bonds=$4,400
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Total = $811,300
Temporary Difference
ADD:
Warranty Expense=$40,700
Total =$852,000
LESS
Depreciation For Equipment = $33,610
Installment Sales=$35,200
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Taxable Income = $783,190
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Taxable TAx payable = $783,190 * 30/100= $234,957
Calculation:
Depreciation For Equipment = $336,100 / 5 =$67,220
Actual Depreciation is $336,100 * 30/100=$100,830
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Different = $33,610
Acural Basis sales = $112,400 - $77,200=$35,200
Warranty Expense = $57,400 - $16,700=$40,700
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Journal entry
Date Particulars LF Debit credit
12/31/2014 Income Tax Expense A/c $243,390
Defered Tax Asset a/c $12,210
To Defered tax liability a/c $20,643
To Income Tax Payable A/c $234,957
(Being Income tax paybale has recorded)
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Calculation
Deferred Tax liability =$20,643 ($10,083 + $10,560)
Less:
Deferred Asset = =$12,210
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Deferred Tax Expense = $8,433
Add:
Income Tax payable = $234,957
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Income Tax expense = $243,390
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Calculation For Income tax for deferred income/loss
Depreciation Expense = $33,610 * 30/100=$10,083(Deferred liability)
Acural Basis sales =$35,200*30/100=$10,560(Deferred liability)
Warranty Expense =$40,700*30/100=$12,210 (Deferred Asset)
Calculation:
Depreciation For Equipment = $336,100 / 5 =$67,220
Actual Depreciation is $336,100 * 30/100=$100,830
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Different = $33,610
Acural Basis sales = $112,400 - $77,200=$35,200
Warranty Expense = $57,400 - $16,700=$40,700
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