(Permanent and Temporary Differences, One Rate) The accounting records of Anderson Inc.

3,5) show the following data for 2007.

1. Life insurance expense on officers was $9,000.

2. Equipment was acquired in early January for $200,000. Straight-line depreciation over a 5-year life is used, with no salvage value. For tax purposes, Anderson used a 30% rate to calculate depreciation.

3. Interest revenue on State of New York bonds totaled $4,000.

4. Product warranties were estimated to be $60,000 in 2007. Actual repair and labor costs related to the warranties in 2007 were $10,000. The remainder is estimated to be incurred evenly in 2008 and 2009.

5. Sales on an accrual basis were $100,000. For tax purposes, $75,000 was recorded on the installment sales method.

6. Fines incurred for pollution violations were $4,200.

7. Pretax financial income was $850,000. The tax rate is 30%.

Instructions

(a) Prepare a schedule starting with pretax financial income in 2007 and ending with taxable income in 2007.

(b) Prepare the journal entry for 2007 to record income tax payable, income tax expense, and deferred income taxes.