Computation of taxable income

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

Gross profit on installment sales recorded on the books was $$480,000.$ Gross profit from

collections of installment receivables was $$320,000.$

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 $($accelerated method$)$

is used and Bosch may deduct $14\%$ for $2018.$

Interest received on tax exempt Iowa State bonds was $$9,000.$

The estimated warranty liability related to $2018$ sales was $$21,600.$ Repair costs under

warranties during $2018$ were $$13,600.$ The remainder will be incurred in $2019.$

Pretax financial income is $$700,000.$ 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 $2018.$

Deferred income taxes

Hunt Co$.$ at the end of $2018,$ its first year of operations, prepared a reconciliation between pretax

financial income and taxable income as follows:

Pretax financial income

Estimated warranty expenses deductible for taxes when paid

Extra depreciation

Taxable income

$[$$$950,000],[1,200,000],[(1,950,000)],[200,000]$

Estimated warranty expense of $$800,000$ will be deductible in $2019,$$$300,000$ in $2020,$ and

$$100,000$ in $2021.$ The use of the depreciable assets will result in taxable amounts of $$650,000$ in

each of the next three years.

Instructions

$($a$)$ Prepare a table of future taxable and deductible amounts.

$($b$)$ Prepare the journal entry to record income tax expense, deferred income taxes, and income

taxes payable for $2018,$ assuming an income tax rate of $40\%$ for all years.