Kruger Industrial Smoothing Inc. reports pre-tax net income for the fiscal year

Question

Kruger Industrial Smoothing Inc. reports pre-tax net income for the fiscal year ended June 30, 2017 of $325,000. Included in this amount are the following: Interest on Lower Perkiomen School District bonds o f $8,000 .Book depreciation of $25,000: tax depreciation $35,500 Bad debt direct write offs $6,000: addition to allowance for bad debts $12,000 Health code violation penalty paid $2,500 Accrued estimated warranty repair at year-end $18,000 Key-man life insurance premiums $5,000 Le Nez Etoufé restaurant bills for the year $1,600 Office rent payable to Clarence Kruger (85% shareholder of Kruger Industrial) $10,000 Requirements a) b) c) d) Identify each item above as a permanent(p) or temporary (t) difference Calculate book taxable income and tax and tax return taxable income and tax (use corporate rates-Appendix C-p. 614) Prepare journal entry to record tax expense per books, income taxes payable and deferred taxes payable or deferred tax asset Assume that in fiscal year 6/18, half of warranty accrual is paid and half of rent accrual is paid Book depreciation is $18,000 and tax depreciation is $14,000. Pre-tax net income per books is $250,000. Perform steps a) -c) above for fiscal year ended 6/30/18

Explanation / Answer

Ans

a).

b).

c).

d).

Permanent Difference Temporary difference - Excess Depreciation of Rs 10000 is temporary difference Allowance for bad debts Health Code vioaltion penalty Accrued estimated warranty($18k) Key man life insurnace premium $5000 Accrued Rent Expenses

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