Account Titles and Explanation Debit Credit Open Show Work SAVE FOR LATER SUBMIT

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Culver Company began operations at the beginning of 2018. The following information pertains to this company.
1. Pretax financial income for 2018 is $85,000. 2. The tax rate enacted for 2018 and future years is 40%. 3. Differences between the 2018 income statement and tax return are listed below: (a) Warranty expense accrued for financial reporting purposes amounts to $6,900. Warranty deductions per the tax return amount to $2,100. (b) Gross profit on construction contracts using the percentage-of-completion method per books amounts to $90,200. Gross profit on construction contracts for tax purposes amounts to $73,000. (c) Depreciation of property, plant, and equipment for financial reporting purposes amounts to $64,300. Depreciation of these assets amounts to $76,900 for the tax return. (d) A $3,300 fine paid for violation of pollution laws was deducted in computing pretax financial income. (e) Interest revenue recognized on an investment in tax-exempt municipal bonds amounts to $1,400. 4. Taxable income is expected for the next few years. (Assume (a) is short-term in nature; assume (b) and (c) are long-term in nature.)

Explanation / Answer

1) Pretax financial incomes $85,000.00 Permanent difference Fines for pollution $3,300.00 Tax-exempt interests -$1,400.00 Originating Temporary Differences Excess Warrant Expenses per Book ($6900 - $2100) $4,800.00 Excess Construction Profit per Book ($90,200 - $73,000) -$17,200.00 Excess Depreciation Per Tax ($76,900 - $64,300) -$12,600.00 Taxable Income for 2018 $61,900.00 2) Temporary Difference Future Taxable (Deductible Amount) Tax Rate           Deferred Tax (Assets) Liability Warrranty -$4,800.00 40.00% -$1,920.00 Construction Profit $17,200.00 40.00% $6,880.00 Depreciation $12,600.00 40.00% $5,040.00 -$1,920.00 $11,920.00 3) Accounts Debit Credit Income tax Expense ($61900 x 40%) $24,760.00 Deferred Tax Assets $1,920.00                               Deferred Tax Liability $11,920.00                                Income Tax Payable $14,760.00 4) Culver Corp. Income Statement (Partial) For the Year Ended December 31, 2018 Income before Income Taxes $85,000.00 Income Taxes Current $24,760.00 Deferred $10,000.00 $34,760.00 Net Income $50,240.00

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