The records for Ehrlich Co. show this data for 2021: Accrued revenue recorded on the books was $480,000. Revenue cash collections was $320,000. Life insurance on officers was $2,800. Fine for pollution violation was $1,000. Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, accelerated depreciation is used and Ehrlich may deduct 15% for 2021. Interest received on tax exempt Florida State bonds was $9,000. The estimated warranty liability related to 2021 sales was $23,000. Repair costs under warranties during 2021 were $12,000. Pretax financial income is $700,000. The tax rate is 25% for this and future years. Instructions (a)     Prepare a schedule starting with pretax financial income and compute taxable income. (b)     Prepare the journal entry to record income taxes for 2021. (c )    Show the income statement presentation of income tax expense, starting with "income before tax"

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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14) 

The records for Ehrlich Co. show this data for 2021:

  • Accrued revenue recorded on the books was $480,000. Revenue cash collections was $320,000.
  • Life insurance on officers was $2,800.
  • Fine for pollution violation was $1,000.
  • Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, accelerated depreciation is used and Ehrlich may deduct 15% for 2021.
  • Interest received on tax exempt Florida State bonds was $9,000.
  • The estimated warranty liability related to 2021 sales was $23,000. Repair costs under warranties during 2021 were $12,000.
  • Pretax financial income is $700,000. The tax rate is 25% for this and future years.

Instructions

(a)     Prepare a schedule starting with pretax financial income and compute taxable income.

(b)     Prepare the journal entry to record income taxes for 2021.

(c )    Show the income statement presentation of income tax expense, starting with "income before tax"

 

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