Computation of taxable income. The records for Bosch Co. show this data for 2013

ID: 2387158 • Letter: C

Question

Computation of taxable income.
The records for Bosch Co. show this data for 2013:
• Gross profit on installment sales recorded on the books was $360,000. Gross profit from collections of installment receivables was $270,000.
• Life insurance on officers was $3,800.
• Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Bosch may deduct 14% for 2013.
• Interest received on tax exempt Iowa State bonds was $9,000.
• The estimated warranty liability related to 2013 sales was $21,600. Repair costs under warranties during 2013 were $13,600. The remainder will be incurred in 2014.
• Pretax financial income is $600,000. The tax rate is 30%.

Instructions
(a) Prepare a schedule starting with pretax financial income and compute taxable income.
(b) Prepare the journal entry to record income taxes for 2013.

Explanation / Answer

Pre tax income

600,000

Permanent difference

Life insurance

3800

Tac exempt interest

(9000)

Temporary difference

Installment sale (360,000- 270,000)

(90000)

Extra depreciation(42000 -30000)

(12000)

Warrenties (19600-13600)

6000

Taxable income

498,800

Income tax expense

149640 +(30600-1800)

178,440

Deffres tax (30% x 6000)

1800

Deferres tax liability(30% x 102,000)

30600

Income tax payable ((30% x 498 800))

149640