Question

Marin Company, which began operations at the beginning of 2015, produces various products on a contract basis. Each contract generates a gross profit of $76,000. Some of Marin's contracts provide for the customer to pay on an installment basis. Under these contracts, Marin collects one-fifth of the contract revenue in each of the following four years. For financial reporting purposes, the company recognizes gross profit in the year of completion (accrual basis). For tax purposes, Marin recognizes gross profit in the year cash is collected (installment basis) Presented below is information related to Marin's operations for 2017: 1. In 2017, the company completed seven contracts that allow for the customer to pay on an installment basis. Marin recognized the related gross profit of $532,000 for financial reporting purposes. It reported only $106,400 of gross profit on installment sales on the 2017 tax return. The company expects future collections on the related installment receivables to result in taxable amounts of $106,400 in each of the next four years. 2. In 2017, nontaxable municipal bond interest revenue was $25,700 3. During 2017, nondeductible fines and penalties of $26,400 were paid 4. Pretax financial income for 2017 amounts to $510,000 5. Tax rates (enacted before the end of 2017) are 50% for 2017 and 40% for 2018 and later 6. The accounting period is the calendar year 7. The company is expected to have taxable income in all future years 8. SPrepare the journal entry to record income taxes for 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit

Answer 1

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Pretax Financial income	510000
Permanent Difference:
Bond Interes Revenue - Non Taxable	-25700
Fine and Penalties-Non Deductible	26400
Timing Difference:
Excess Gross profit as per books	-425600
(532000-106400)
Taxable Income for 2017	85100
Income Tax rate for 2017	50%
Income Tax Payable for 2017	42550
Future Taxable Amount	425600
(106400)*4
Income Tax Rate	40%
Tax Amount to be paid in Future	170240
(Liability)
Journal Entry:
	Debit	Credit
Income Tax Expense	212790
Income Tax Payable		42550
Deferred Tax Liability		170240