Question

SECTION III 40 Points in 2o18 the Builich cemnrd ratay The followi income: 8 of $100,000. 6 ompany reported pretax accounting income of $100,000. ng items cause taxable income to be different than accounting Warranty expense accrued for financial reporting purposes was $5,000. Actual warranty cost paid was $2,000. Gross profit on construction contracts using the percentage-of- completion method for financial reporting was $92,000. Bullish uses the completed contract method for tax purposes. The gross proft reported for tax purposes under this method was $62,000. 1. 2. 3. Depreciation Expense on the company's books for property, plant and 4. A $3,500 non-deductible fine was charged to expense for financial 5. Interest earned on tax-exempt municipal bonds was $1,400. equipment amounts to $60,000. Bullish's tax depreciation using MACRS was $80,000. reporting purposes. Bullish's tax rate is 40% for all years and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of the year. Instructions 1. Compute taxable income and income taxes payable for 2018. 2. 3. 4. Prepare the journal entry to record income tax expense, income taxes payable and any related deferred taxes for 2018. Prepare a partial income statement for the year ended 2018 that illustrates the reporting of Federal Income Tax Expense. Describe how the timing differences would appear in the 2018 balance sheet i.e. what ledger accounts would present the timing differences. 3

Answer 1

Buligh Ceompan Covoputa tion o taxable intome fo Ool6 Accounting Sntome Depsectation as per books fine expense not deducble 芦3500 1400 $24900 15 0o toatan costs actualy paid Paofit on Cor?hu2ton Conta et Depreciation unde mAcR8 -2 00o 62. oo Tovable mome

ate ccount ttle and explanation Dec 3mtome Tox expense De bit (edt tome to» Pova ntome to Payable. Ent htok Snlonte tox expense. 2204t foơ. 2018) Dec Defeved top erpenge De-terved tar tiobiüt Ehy tobook desened tax erpeuse for 90l8 18800 Earnings befose toxe Imtomd tax expenses: Cseemt Sncome tax Delersed tareg 18, дос) Net ntome 5160 ane ve poxted the balonce skeet under Deterved AsRer o Cueent Uabiiht. Hence the Deferred Currert Jbuty n the ance sheet oeported undes