The accounting records of Flounder Inc. show the following data for 2017 (its fi

Question

The accounting records of Flounder Inc. show the following data for 2017 (its first year of operations). 1. Life insurance expense on officers was $13,000 2. Equipment was acquired in early January for $318,000. Straight-line depreciation over a 5-year life is used, with no salvage value. For tax purposes, 3. Interest revenue on State of Iowa bonds totaled $4,000 4. Product warranties were estimated to be $46,000 in 2017. Actual repair and labor costs related to the warranties in 2017 were $9,000. The 5. Pretax financial income was $907,000. The tax rate is 30%. Flounder used a 30% rate to calculate depreciation. remainder is estimated to be paid evenly in 2018 and 2019

Explanation / Answer

Answer 1. Schedule of Pretax Financial Income and Taxable Income for 2017 Pretax Financial Income          907,000 Permanent Differences: Insurance Expenses            13,000 Bond Interest Revenue            (4,000)          916,000 Temporary Differences Depreciation Expenses          (31,800) Warranty Expenses            37,000 Taxable Income          921,200 Answer 2 & 3. Journal Entry Date Particulars Dr. amt. Cr. Amt 2017 Income Tax Expense                                      Dr.          274,800 $916,000 X 30% Deferred Tax Asset                                         Dr.            11,100 $37,000 X 30%     To Deferred Tax Liability              9,540 $31,800 X 30%     To Income Tax Payable          276,360 $921,200 X 30% 2018 Income Tax Refund Receivable                  Dr.          276,360 921,200 X 30% Deferred Tax Asset                                          Dr.            12,840 ($964,000 - $921,200) X 30%     Benefit Due to Loss Carryback          276,360     Benefit Due to Loss Carryforward            12,840

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