Assume the following facts for Munoz Company in 2016. Munoz reported pretax financial income of $800,000....
Assume the following facts for Munoz Company in 2016. Munoz reported pretax financial income of $800,000. In addition, Munoz reported the following differences between its pretax financial income and taxable income:
| • | Interest income of $80,000 was received during 2016 from an investment in municipal bonds. This income is exempt for tax purposes. |
| • | Rent income of $40,000 was collected in 2015 and included for tax purposes during that year. For financial statement purposes, it will be reported as earned equally in 2016 and 2017. |
| • | An asset with a 5-year life was purchased during 2016; straight-line depreciation for book purposes was $40,000. MACRS depreciation expense for 2016 was $100,000. |
| • | Warranty expense of $20,000 was recognized on the 2016 income statement, while $5,000 was recognized for tax purposes. (Assume a 1-year warranty contract.) |
The balance of the Deferred Tax Asset account (debit) at January 1, 2016, was $16,000 as a result of the rent income temporary difference. The tax rate for all years was 40%. Munoz has positive verifiable evidence of future taxable income.
Required:
| 1. | Calculate the amount of Munoz’s 2016 taxable income. |
| 2. | Prepare Munoz’s income tax journal entry at the end of 2016. |
| 3. | Calculate Munoz’s effective income tax rate for 2016. |
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Assume the following facts for Munoz Company in 2016. Munoz
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