REQUIREMENTS

1) Compute taxable income (loss) for 2017 and 2018. ( 6 points)

2) Prepare journal entries to record 2017 and 2018 tax expense (benefit).

REQUIRED Jones Co. began operations on January 1, 2017. The only items for which Jones reports differently for financial and tax purposes are installment sales and warranties. Jones recognizes sales and accrues warranties in the year of the sale giving rise to the amounts for financial purposes and for tax purposes recognizes the taxable and deductible amounts when cash is received or paid. The recognized sales and accrued warranties (in bold) for financial purposes and the cash flows for tax purposes are provided in the tables below Installment Sales 2018 2019 2020 2017 $565,000 Installment Sales 2017 Cash Collected on 2017 Installment Sales $200,000 Installment Sales 2018 Cash Collected on 2018 Installment Sales $215,000 $150,000 $785,000 $250,000 $400,000 $135,000 Warranties 2017 $215,000 2019 Estimated Warranties from 2017 Sales Cash Paid for Warranty work related to 2017 Sales Estimated Warranties from 2018 Sales 2018 Cash Paid for Warranty work related to 2018 Sales 75,000$140,000 $295,000 $130,000 $165,000 Enacted tax rates as of 2017 are: 35% 35% 30% o 2017 o 2018 2019 and later Assume estimated cash collections from installment sales and cash paid for warranty work occur as expected (as indicated in the tables). Whenever possible, Jones carries taxable net operating losses back for a refund of prior year's taxes. Losses unable to be carried back are carried forward. Financial income in 2017 is $300,000 and financial income in 2018 is $275,000 . . REQUIREMEN 1) Compute taxable income (loss) for 2017 and 2018 2 Prepare journal entries to record 2017 and 2018 tax expense (benefit). (Hint: Appendix ( 6 points) 19A presents a comprehensive deferred tax example that may be helpful in completing this problem. (14 points) Check Figures: 2018 Taxable loss 2018 Income tax expense ($20,000) $84,750 2