Question

The Swirlie Suitcase Co. reported $600,000 income for the year 12/31/20xx. Consider the following additional information....

The Swirlie Suitcase Co. reported $600,000 income for the year 12/31/20xx. Consider the following additional information.

Swirlie had a deferred tax asset at the beginning of the year of $10,000. The Company used accelerated depreciation for tax purposes that results in a reduced asset basis of $12,000. Swirlie owns City of Cleveland bonds that yielded $45,000 interest income. In addition, the Company paid $11,000 to repair products sold that was still under warranty. Based on sales for 20xx, the Company anticipates that an additional warranty expense of $40,000 has been incurred.

Required: Assuming the tax rate, current and future, is 20%, how much income tax do they owe for 20xx?

Homework Answers

Answer #1
Particulars Amount
Net Income as per books 600000
Less:
Additional Dep under Income Tax 12000
Interest Income on Bond(Exempt) 45000
Repair Expenses under warranty 11000
532000
Add: Estimated Warranty Expenses 40000
Taxable Income 572000
Tax rate 20%
Income Tax 114400

Note: Estimated Warranty expenses are charged to Income statement & a liability is created in Balance sheet, when actual warranty expenses are paid, then such warranty expenses are deducted from the liability, whereas under Income Tax, deduction for warranty Expenses are provided on Cash Basis i.e., when it is actually incurred

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