Explore BrainMass

# Computation of Taxable Income and Journal Entries

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Problem 1
Computation of taxable income.
The records for Orkin Co. show this data for 2008:
? 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 Orkin may deduct 14% for 2008.
? Interest received on tax exempt Iowa State bonds was \$9,000.
? The estimated warranty liability related to 2008 sales was \$19,600. Repair costs under warranties during 2008 were \$13,600. The remainder will be incurred in 2009.
? 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 2008.

Problem 2
ABC Corporation began operation in 2007 and reported pretax financial income of \$225,000 for the year. ABC's tax depreciation exceeded its book depreciation by \$30,000. ABC's tax rate for 2007 and year thereafter is 30%.
a) In its December 31, 2007 balance sheet, what amount of deferred tax liability should be reported?
b) Prepare a schedule in good form illustrating your answer.
c) Prepare the journal entry for the expense.

Problem 3
At December 31, 2006, ABC Corporation had a deferred tax liability of \$25,000. At December 31, 2007, the deferred tax liability is \$42,000. The corporation's 2007 current tax expense is \$43,000.
a) What amount should ABC Corporation report as total tax expense?
b) Prepare the December 31, 2007 journal entry to record income tax expense.

© BrainMass Inc. brainmass.com June 3, 2020, 10:00 pm ad1c9bdddf
https://brainmass.com/business/accounting/computation-of-taxable-income-210049

#### Solution Summary

This solution computes taxable income from numerous purchases, prepares journal entries for stated transactions and calculates the amount reported as total tax expense.

\$2.19