Question
ccc Inc. is in its first and second years of operations and has five differences between pretax accounting income and taxable income: 1. Fixed assets,
ccc Inc. is in its first and second years of operations and has five differences between pretax accounting income and taxable income: 1. Fixed assets, $150,000 historical cost, are depreciated straight-line over three years for the financial statements and are depreciated straight-line over two years for tax purposes. 2. Warranty expenses of $140,000 are accrued for financial statement purposes, but the tax deduction won't be available until the warranty expenses are paid, expected evenly over the next 2 years ($70,000 per year). 3. Municipal bond interest is received from investments in municipal bonds over the two years of $70,000 in 2016 and $60,000 in 2017. 4. Subscription Revenue $120,000 is deferred on the 2016 financial statements as Unearned Revenue. For tax purposes, the revenue must be reported as soon as the contract is signed. For book purposes, the $120,000 will be earned in 2017. 5. Installment sale gains of $65,000 are reported in 2016 and 2017. For financial statements, all of the gain is reported in 2016. Ccc has pretax accounting income of $300,000 in 2016 and $450,000 in 2017. The statutory tax rate is 40%. Calculate Ccc taxable income and income tax payable for 2016 and 2017. Calculate the balance in Ccc deferred tax asset and liability accounts at the end of 2016 and 2017.
prepare an effective tax rate reconciliation for 2016 and 2017.
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