Computation of taxable income.
The records for Frish Co. show this data for 2011:
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 $2,900.
Machinery was acquired in January for $300,000. Straight-line depreciation over a 10-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Frish may deduct 14% for 2011.
Interest received on tax exempt Iowa State bonds was $6,000.
The estimated warranty liability related to 2008 sales was $19,600. Repair costs under warranties during 2011 were $13,600. The remainder will be incurred in 2012.
Pretax financial income is $700,000. The tax rate is 30%.
a) Prepare a schedule starting with pretax financial income and compute taxable income.
b) Prepare the journal entry to record income taxes for 2011.
The solution explains how to prepare a schedule of taxable income and the related journal entries