Question

The records for Bosch Co. show this data for 2018: Gross profit on instalilment sales recorded on the books was ss00,000. Gross profit from collections of in Life insurance on officers was $4,600 the books was $500,000. Gross profit from collections of Installment recelvables was $360,000. n s used and n nary for $s300,00, Srh-o over a ten-yer life no salvege valua) s used. For tax purposes, MACRS Interest recelved on tax exempt lowa State bonds was $9,800. . The estimated warranty liablity related to 2018 sales was $22,400. Repair costs under warranties during 2018 were s14,400. The remainder will be incurred in 2019 Pretax financial income is $680,000. The tax rate is 30%. Prepare a schedule starting with pretax financial income and compute taxable income. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Schedule of Pretax Financial Income and Taxable Income for 2018

Answer 1

SOLUTION

A. Schedule of Pretax financial Income and Taxable Income for 2018-

Particulars	Amount ($)
Pretax financial income	680,000
Permanent differences-
Add: Life insurance	4,600
Less:Tax-exempt interest	(9,800)
Temporary differences-
Less: Installment sales (500,000-360,000)	(140,000)
Less: Extra depreciation* (53,200-38,000)	(15,200)
Add: Warranties (22,400-14,400)	8,000
Taxable income	527,600

*Extra depreciation-

Depreciation (Account Book purpose) = Cost of machine / Number of years

= 380,000 / 10 years = 38,000

Depreciation (Tax purpose) = Cost of machine * MACRS depreciation rate

= 380,000 * 14% = 53,200

B. Journal entry-

Account titles and explanation	Debit ($)	Credit ($)
Income Tax expenses	202,440
Deferred tax asset (8,000*30%)	2,400
Deferred tax liability (140,000+15,200)*30%		46,560
Income Tax payable (527,600*30%)		158,280