Question

NEXT Question 10 The accounting records of Tamarisk Inc. show the following data for 2017 (its first year of operations). 1. Life insurance expense on officers was $9,500 2. Equipment was acquired in early January for $307,000. Straight line depreciation over a 5-year life is used, with no salvage value. For tax purposes, Tamarisk used a 30% rate to calculate depreciation. 3. Interest revenue on State of New York bonds totaled $3,700. 4. Product warranties werk estimated to be $50,900 in 2017. Actual repair and labor costs related to the warranties in 2017 were $11,000. The remainder is estimated to be paid evenly in 2018 and 2019. 5. Gross profit on an accrual basis was $96,000. For tax purposes, $80,600 was recorded on the installment sales method. 6. Fines incurred for pollution violations were $4,100. 7. Pretax financial income was $739,300. The tax rate is 30%. Prepare a schedule starting with pretax financial income in 2017 and ending with taxable income in 2017. (Enter negative amounts using either a negative sin preceding the number e.g.-45 or parentheses e.g. (45).) Schedule of Pretax Financial Income and Taxable Income for 2017 Pretax financial income Permanent differences

Answer 1

Solution:

Tamarisk Inc.
Schedule of pretax financial income and taxable income for 2017
Particulars	Amount
Pretax financial Income	$739,300.00
Permanent differences:
Life insurance expense	$9,500.00
Bond Interest Revenue	-$3,700.00
Pollution Fines	$4,100.00
Temorary differences:
Depreciation Expense ($307,000*30% - $307,000/5)	-$30,700.00
Add: Warranty Expense ($50,900 - $11,000)	$39,900.00
Less: Installment Sales ($96,000 - $80,600)	-$15,400.00
Taxable Income	$743,000.00
Income tax (30%)	$222,900.00

Tamarisk Inc.
Journal Entries
Date	Particulars	Debit	Credit
31-Dec-17	Income tax expense Dr	$224,760.00
	Deferred Tax Assets Dr ($39,900*30%)	$11,970.00
	To Income Tax Payable		$222,900.00
	To Deferred tax liability ($46,100*30%)		$13,830.00
	(Being current income tax and deferred taxes)