Ehrlich Company had the following information for 2021. 1. Pretax financial income for 2021 is $100,000. 2. The tax rate enacted for 2021 and future years is 20%. 3. Differences between the 2021 income statement and tax return are listed below: a. Warranty expense accrued for financial reporting purposes amounts to $7,000. Warranty deductions per the tax return amount to $2,000. b. Gross profit on construction contracts using the percentage-of-completion method per books amounts to $92,000. Gross profit on construction contracts for tax purposes amounts to $67,000. c. Depreciation of property, plant, and equipment for financial reporting purposes amounts to $60,000. Depreciation of these assets amounts to $80,000 for the tax return. d. A $3,500 fine paid for violation of pollution laws was deducted in computing pretax financial income. e. Interest revenue recognized on an investment in tax-exempt municipal bonds amounts to $1,500. Instructions: a. Compute taxable income for 2021. b. Compute the deferred taxes at December 31, 2021, that relate to the temporary differences described above. Clearly label them as deferred tax asset or liability. c. Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2021. d. Draft the income tax expense section of the income statement, beginning with “Income before income taxes.” e. How will the deferred income taxes be shown on the balance sheet?
Ehrlich Company had the following information for 2021.
1. Pretax financial income for 2021 is $100,000.
2. The tax rate enacted for 2021 and future years is 20%.
3. Differences between the 2021 income statement and tax return are listed below:
a. Warranty expense accrued for financial reporting purposes amounts to $7,000. Warranty deductions per the tax return amount to $2,000.
b. Gross profit on construction contracts using the percentage-of-completion method per books amounts to $92,000. Gross profit on construction contracts for tax purposes amounts to $67,000.
c.
d. A $3,500 fine paid for violation of pollution laws was deducted in computing pretax financial income.
e. Interest revenue recognized on an investment in tax-exempt municipal bonds amounts to $1,500.
Instructions:
a. Compute taxable income for 2021.
b. Compute the
c. Prepare the
d. Draft the income tax expense section of the income statement, beginning with “Income before income taxes.”
e. How will the deferred income taxes be shown on the
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