Question

*Problem 19-4 (Part Level Submission) The accounting records of Sheridan Inc. show the following data for 2017 (its first year of operations). 1. Life insurance expense on officers was $8,300 2. Equipment was acquired in early January for $290,000. Straight-line depreciation over a 5-year life is used, with no salvage value. For tax purposes, Sheridan used a 30% rate to calculate depreciation. 3. Interest revenue on State of New York bonds totaled $4,100. 4. Product warranties were estimated to be $53,800 in 2017, Actual repair and labor costs related to the warranties in 2017 were $10,300. The remainder is estimated to be paid evenly in 2018 and 2019 5. Gross profit on an accrual basis was $97,000. For tax purposes, $80,800 was recorded on the installment-sales method 6. Fines incurred for pollution violations were $4,300 7, pretax financial income was $685,800. The tax rate is 30%

Answer 1

Sheridan Inc.
Schedule of Pretax Financial Income
and Taxable Income for 2017
Pretax financial income	685800
Permanent differences
Insurance expense	8300
Bond interest revenue	-4100
Pollution fines	4300
	694300
Temporary differences
Depreciation expense	-29000
Warranty expense ($53800 - $10300)	43500
Installment sales ($97000 - $80800)	-16200
Taxable income	692600

Working:

Depreciation for books ($290000/5)	58000
Depreciation for tax ($290000 x 30%)	87000
Temporary difference	29000