The accounting records of Monty Inc. show the following data for 2017 (its first
ID: 2517757 • Letter: T
Question
The accounting records of Monty Inc. show the following data for 2017 (its first year of operations).
Schedule of Pretax Financial Income
and Taxable Income for 2017
Account Titles and Explanation
Debit
Credit
1. Life insurance expense on officers was $8,400. 2. Equipment was acquired in early January for $308,000. Straight-line depreciation over a 5-year life is used, with no salvage value. For tax purposes, Monty used a 30% rate to calculate depreciation. 3. Interest revenue on State of New York bonds totaled $4,400. 4. Product warranties were estimated to be $52,100 in 2017. Actual repair and labor costs related to the warranties in 2017 were $10,500. The remainder is estimated to be paid evenly in 2018 and 2019. 5. Gross profit on an accrual basis was $97,000. For tax purposes, $78,900 was recorded on the installment-sales method. 6. Fines incurred for pollution violations were $4,600. 7. Pretax financial income was $710,100. 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 sign preceding the number e.g. -45 or parentheses e.g. (45).)Schedule of Pretax Financial Income
and Taxable Income for 2017
Repair and Labor Costs Installment Sales Interest Expense Depreciation Expense Insurance Expense Warranty Expense Bond Interest Revenue Pollution Fines
Pollution Fines Depreciation Expense Bond Interest Revenue Installment Sales Warranty Expense Interest Expense Repair and Labor Costs Insurance Expense
Pollution Fines Bond Interest Revenue Installment Sales Insurance Expense Warranty Expense Depreciation Expense Interest Expense Repair and Labor Costs
Temporary differencesInsurance Expense Pollution Fines Bond Interest Revenue Depreciation Expense Warranty Expense Installment Sales Interest Expense Repair and Labor Costs
Insurance Expense Bond Interest Revenue Pollution Fines Depreciation Expense Installment Sales Warranty Expense Interest Expense Repair and Labor Costs
Interest Expense Warranty Expense Installment Sales Repair and Labor Costs Insurance Expense Depreciation Expense Bond Interest Revenue Pollution Fines
Taxable incomePrepare the journal entry for 2017 to record income taxes payable, income tax expense, and deferred income taxes. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
Explanation / Answer
Pretax financial income................$710,100
Insurance Income........................$8400
Bond Interest Revenue...............($4,400)
Pollution fines.............................$4,600
$718,700
Temporary Differences
*Depreciation expenses...............(30800)
Installment sales.........................(18100)
(78900-97000)
Warranty Expenses....................41600
(52100-10500)
Taxable Income........................$711,400
*Calculation of depreciation expense:
[(308000/5) - (308000*30%) = 61600-92400 = 30800]
Income Tax Expense:
711400 * 30% = $213,420
Computation of Deferred tax income
Depreciation Expense (30,800) * 30% = (9,240)....DTL
Instalment Sales (18,100) * 30% = (5,430).....DTL
Warranty Expense 41600 * 30% = 12,480.......DTA
Deferred Tax expense(DTL) (9240+5430) .................14670
Deferred Tax Benefit (DTA) .....................12480
Net Deferred Tax Expense 2190
Current Tax Expense.................................................$213,420
Income Tax expense for the year..............................$215,610
Journal Entry
Income Tax Expense a/c,,,,,,,,,dr $215,610
Deferred Tax Expense............dr 12480
To Deferred Tax Liability a/c 14670
ToIncome Tax payable..a/c 213420
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