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Question 3: (25 points) O'Sheet Inc. develops properties, recognizing revenue on an installment basis for financial reporting purposes. For tax purposes, revenue is reported as paid. 2018 installment income was $600,000 and will be collected over the following three years as shown. O'Sheet also had product warranty costs of $80,000 expensed for financial reporting purposes in 2017. For tax purposes, only the $20,000 of the warranty costs actually paid in 2018 was deducted. The remaining $60,000 will be deducted for tax purposes when paid over the next three years as shown. Scheduled collections/payments and enacted tax rates for 2019-2021 are as follows: Tax Year 2019 Rates 30% Installment $150,000 250,000 200,000 Warranty $20,000 25,000 15,000 2020 2021 40 40 Pretax accounting income for 2018 was $810,000, which includes interest revenue of $10,000 from tax free municipal bonds. The enacted tax rate for 2018 is 30%. Required: 1. Prepare the appropriate journal entry to record O'Sheet's 2018 income taxes. 2. Prepare the appropriate journal entry for 2019 income taxes if pretax accounting income for the year was $905,000 which included tax free municipal bond interest of $5,000. Installment sales and warranty payments were as scheduled. Question 3: (25 points) O'Sheet Inc. develops properties, recognizing revenue on an installment basis for financial reporting purposes. For tax purposes, revenue is reported as paid. 2018 installment income was $600,000 and will be collected over the following three years as shown. O'Sheet also had product warranty costs of $80,000 expensed for financial reporting purposes in 2017. For tax purposes, only the $20,000 of the warranty costs actually paid in 2018 was deducted. The remaining $60,000 will be deducted for tax purposes when paid over the next three years as shown. Scheduled collections/payments and enacted tax rates for 2019-2021 are as follows: Tax Year 2019 Rates 30% Installment $150,000 250,000 200,000 Warranty $20,000 25,000 15,000 2020 2021 40 40 Pretax accounting income for 2018 was $810,000, which includes interest revenue of $10,000 from tax free municipal bonds. The enacted tax rate for 2018 is 30%. Required: 1. Prepare the appropriate journal entry to record O'Sheet's 2018 income taxes. 2. Prepare the appropriate journal entry for 2019 income taxes if pretax accounting income for the year was $905,000 which included tax free municipal bond interest of $5,000. Installment sales and warranty payments were as scheduled