1. Assume a company has the following information regarding journal entries that it needs to make in the current year as it closes its books for the year:

Income Taxes Payable increase $160,000

Increase Deferred Tax Asset $ 2,500

Increase to Deferred Tax Liability $ 50,000

Based only on the above items, what entry needs to be made to Income the Income Tax Expense account?

Debit Income Tax Expense $207,500

Credit Income Tax Expense $207,500

Credit Income Tax Expense $107,500

Debit Income Tax Expense $107,500

2. Assume that the following data relative to Kane Company for 2018 is available:

Net Income $2,100,000

Weighted Averaged # of Common Shares 1,340,000

6% Cumulative Convertible Preferred Stock

Sold at par, convertible into 200,000 shares of common $1,000,000

Stock Options

Exercisable at the option price of $25 per share. Average

market price of shares in 2018 was $30 90,000 shares

Question: How would the preferred stock impact the Basic Earnings Per Share Calculation?

Preferred dividends of $60,000 would be subtracted from the numerator

No impact

Preferred shares of 200,000 would be subtracted from the denominator

Preferred stock of $1M would be subtracted from the numerator

QUES 3.

The records for Bosch Co. show this data for 2018:

• Gross profit on installment sales recorded on the financial books was $480,000. Gross profit from those same sales for tax purposes was only $320,000.

• Life insurance expense on officers was $3,800 for book purposes (not deductible for tax purposes).

• Machinery was acquired in January for $300,000. For book reporting, straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used which allows Bosch to deduct 14% of the acquisition cost as depreciation for 2018.

• Income recorded in the financial books for interest received on tax exempt Iowa State bonds was $9,000 (not taxable).

• The estimated warranty liability related to 2018 sales was $21,600 for book purposes. Actual warranty repair costs during 2018 were $13,600, thus the ending book warranty liability was $8,000. The remainder of the costs will be incurred in 2019.

• Pretax financial (i.e., book) income is $700,000.

• The tax rate is 30%.

What is the impact of permanent differences when computing taxable income from pretax financial income?

		$5,200 reduction to pretax income
		$9,000 reduction to pretax income
		$5,200 addition to pretax income
		$3,800 addition to pretax income.