Exceptional Manufacturing, Inc.

As the financial accountant assigned to year-end federal tax work for the annual report for 2017, you have obtained the following information about Exceptional:

INCOME STATEMENT (in thousands, expenses are shown in parentheses)

Revenue $475,000

Costs of goods sold (200,000)

Gross profit $275,000

Marketing, administrative and research expenses (185,000)

Interest income on investments 5,000

Interest expense (12,000)

Other income/expense 15,000

Income before income taxes $98,000

OTHER INFORMATION (in thousands, expenses show in parentheses)

Depreciation expenses, reflected above (in cost of goods sold

and Marketing, administrative and research (18,000)

Depreciation on the tax return (in total) (22,000)

To be overly clear, tax depreciation is $4,000 higher.

Interest income on municipal bonds (included in interest income

on investments) 4,000

Exceptional received an advance payment of $22,000 from a customer for

work that will be done next year. Under tax rules, the $22,000 is taxable

this year.

Tax credits from research activities (directly reduces tax payable) 750

Gross profit earned in a tax-free zone 31,000

(Revenue, less cost of goods sold for an operation in a tax

free zone, not taxable now and never will be.)

The federal tax rate is 21%.

Your assignment: Calculate the federal income tax provision/expense and prepare the entry to record the provision (including expense, income taxes payable and deferred income taxes). Calculate the effective tax rate.