Question

Omaha Inc. reports $156,000 financial income for 2018, before adjusting the following differences for tax reporting purpose. 1. Pollution fine of $25,000 was paid and recorded. 2. Installment sales result in gross profit recognized for financial reporting purposes in excess of gross profit recognized for tax purposes by $13,000 3. Warranty expenses deducted for financial reporting exceeded warranty costs deducted for income taxes by $10,500. 4. Percentage depletion deducted for income taxes exceeded cost depletion deducted for financial reporting by $32,500. The income tax rate is 25% for 2018, and 20% rate for 2019 and future years. Notes: Read carefully and follow strictly so that Bb can grade you correctly! 1. Use comma in numbers, one thousand is 1,000, not 1000. No S sign. No positive or negative sign. 2. If no entry is required, write NA 3. Only use the following accounts: Income tax expense. Income tax expense. D. Income taxes payable, Deferred tax asset/liability. warranty, Deferred tax asset/liability installment sales, Deferred tax asset/iability. percentage depletion 4. Copy account names accurately to receive credits, names are not case sensitive

Answer 1

1). 156,000 25,000 181,000 (156000+25000) Pretax financial income Add/Less: Permanent differences (net) Pretax financial income adjusted Add/Less: Temporary differences Add: Warranty Less: Installment sales Less: Percentage depletion Taxable income Income tax payable 10,500 13,000 32,500 146,000 (181000+10500-13000-32500) 36,500 (146000 x 25%) 2). Journal entries-Current Date Account Titles and Explanation 31-Dec-18 Income tax expense Income tax payable Credit Debit 36,500 36,500 Journal entries-Deffered Date Account Titles and Explanation 31-Dec-18 Income tax expense Deffered tax asset-Warranty Deffered tax liability-Installment sales Deffered tax liability-Percentage depletion Debit 7,000 2,100 Credit (6500+2600-2100) (10500 x 20%) 2,600 (13000 x 20%) 6,500 (32500 x 20%)