5. Bumble Bee Co. has taxable income of $7000 in 2014. It accrued warranty expen

Question

5. Bumble Bee Co. has taxable income of $7000 in 2014. It accrued warranty expense of $400 on the books although no warranty work was performed (no cash-outflow for actual warranty expenditure). What is Bumble Bee's pretax accounting income. Tax rate is 30% Prepare journal entry. 6. Bumble Bee Co. has taxable income of $7000 in 2015. The depreciation is $5000 under IRC and $2000 under GAAP, Tax rate is 30%. What is Bumble Bee's pretax Prepare journal entry. accounting income? 7. 1) Advance collection from customer (unearned revenue) will lead to an increase in Deferred tax asset/Deferred tax liability 2) Accrued warranty expense under US GAAP will lead to an increase in Deferred tax asset/Deferred tax liability 3) Recording high depreciation under IRC and low depreciation under GAAP will lead to an increase in Deferred tax asset/Deferred tax liability

Explanation / Answer

5) Pretax accounting income = Taxable income - warranty expense

= 7,000 - 400 = $6,600 Ans.

Jouranl entry for income tax paid in 2014:

Dr. Income tax expense (7,000 * 30%) 2,100

Cr. Cash 2,100

6) Pretax accounting income = Taxable income + depreciation

= 7,000 + (5,000 - 2,000) = $10,000 Ans.

Jouranl entry for income tax paid in 2015:

Dr. Income tax expense (7,000 * 30%) 2,100

Cr. Cash 2,100

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