Oriole Company, which began operations at the beginning of 2018, produces various products on a contract basis. Each contract generates a gross profit of $82,000. Some of Oriole’s contracts provide for the customer to pay on an installment basis. Under these contracts, Oriole collects one-fifth of the contract revenue in each of the following four years. For financial reporting purposes, the company recognizes gross profit in the year of completion (accrual basis). For tax purposes, Oriole recognizes gross profit in the year cash is collected (installment basis). Presented below is information related to Oriole’s operations for 2020: 1. In 2020, the company completed seven contracts that allow for the customer to pay on an installment basis. Oriole recognized the related gross profit of $574,000 for financial reporting purposes. It reported only $114,800 of gross profit on installment sales on the 2020 tax return. The company expects future collections on the related installment receivables to result in taxable amounts of $114,800 in each of the next four years. 2. In 2020, nontaxable municipal bond interest revenue was $29,600. 3. During 2020, nondeductible fines and penalties of $28,100 were paid. 4. Pretax financial income for 2020 amounts to $510,000. 5. Tax rates (enacted before the end of 2020) are 30% for 2020 and 20% for 2021 and later. 6. The accounting period is the calendar year.
Oriole Company, which began operations at the beginning of 2018, produces various products on a contract basis. Each contract generates a gross profit of $82,000. Some of Oriole’s contracts provide for the customer to pay on an installment basis. Under these contracts, Oriole collects one-fifth of the contract revenue in each of the following four years. For financial reporting purposes, the company recognizes gross profit in the year of completion (accrual basis). For tax purposes, Oriole recognizes gross profit in the year cash is collected (installment basis). Presented below is information related to Oriole’s operations for 2020: 1. In 2020, the company completed seven contracts that allow for the customer to pay on an installment basis. Oriole recognized the related gross profit of $574,000 for financial reporting purposes. It reported only $114,800 of gross profit on installment sales on the 2020 tax return. The company expects future collections on the related installment receivables to result in taxable amounts of $114,800 in each of the next four years. 2. In 2020, nontaxable municipal bond interest revenue was $29,600. 3. During 2020, nondeductible fines and penalties of $28,100 were paid. 4. Pretax financial income for 2020 amounts to $510,000. 5. Tax rates (enacted before the end of 2020) are 30% for 2020 and 20% for 2021 and later. 6. The accounting period is the calendar year.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter22: Accounting For Changes And Errors.
Section: Chapter Questions
Problem 12RE: Abrat Company failed to accrue an allowance for doubtful accounts of 13,500 in 2019. Upon discovery...
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Oriole Company, which began operations at the beginning of 2018, produces various products on a contract basis. Each contract generates a gross profit of $82,000. Some of Oriole’s contracts provide for the customer to pay on an installment basis. Under these contracts, Oriole collects one-fifth of the contract revenue in each of the following four years. For financial reporting purposes, the company recognizes gross profit in the year of completion (accrual basis). For tax purposes, Oriole recognizes gross profit in the year cash is collected (installment basis).
Presented below is information related to Oriole’s operations for 2020:
| 1. | In 2020, the company completed seven contracts that allow for the customer to pay on an installment basis. Oriole recognized the related gross profit of $574,000 for financial reporting purposes. It reported only $114,800 of gross profit on installment sales on the 2020 tax return. The company expects future collections on the related installment receivables to result in taxable amounts of $114,800 in each of the next four years. | ||
| 2. | In 2020, nontaxable municipal bond interest revenue was $29,600. | ||
| 3. | During 2020, nondeductible fines and penalties of $28,100 were paid. | ||
| 4. | Pretax financial income for 2020 amounts to $510,000. | ||
| 5. | Tax rates (enacted before the end of 2020) are 30% for 2020 and 20% for 2021 and later. | ||
| 6. | The accounting period is the calendar year. | ||
| 7. | The company is expected to have taxable income in all future years. | ||
| 8. | The company has no |
Transcribed Image Text:Prepare the journal entry to record income taxes for 2020. (Credit account titles are automatically indented when the amount is
entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)
Account Titles and Explanation
Debit
Credit
Income Tax Expense
106630
Income Tax Payable
14790
Deferred Tax Liability
91840
Transcribed Image Text:Indicate, starting with the line "Income before income taxes", how income taxes are reported on the income statement. What is
Oriole's effective tax rate? (Round tax rate to 2 decimal places, e.g. 52.75%. Enter negative amounts using either a negative sign
preceding the number e.g. -45 or parentheses e.g. (45).)
Oriole Company
Income Statement (Partial)
$
Effective tax rate
%
%24
%24
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