Question

Monty Company began operations at the beginning of 2018. The following information pertains to this company. 1. Pretax financial income for 2018 is $85,000. 2. The tax rate enacted for 2018 and future years is 40% 3. Differences between the 2018 income statement and tax return are listed below: (a) Warranty expense accrued for financial reporting purposes amounts to $6,900. Warranty deductions per the tax return amount to $2,100. (b) Gross profit on construction contracts using the percentage-of-completion method per books amounts to $90,200. Gross profit on construction contracts for tax purposes amounts to $73,000. (c) Depreciation of property, plant, and equipment for financial reporting purposes amounts to $64,300. Depreciation of these assets amounts to $76,900 for the tax return (d) A $3,300 fine paid for violation of pollution laws was deducted in computing pretax financial income. (e) Interest revenue recognized on an investment in tax-exempt municipal bonds amounts to $1,400. 4. Taxable income is expected for the next few years. (Assume (a) is short-term in nature; assume (b) and (c) are long-term in nature.) (a) Compute taxable income for 2018. Taxable income for 2018 $ Open Show Work Click if you would like to Show Work for this question:

Answer 1

	Pretax financial income	85000
a	Add: Warranty deductions not allowed	4800	=6900-2100
b	Less: Excess Gross Profit	-17200	=73000-90200
c	Less: Excess Depreciation	-12600	=64300-76900
d	Add: Fine for violation not allowed	3300
e	Less: Exempt interest revenue	-1400
	Taxable income for 2018	61900