Question

The records for Bosch Co. show this data for 2015:

• Gross profit on installment sales recorded on the books was $420,000. Gross profit from collections of installment receivables was $280,000 for tax purpose.
• Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year life (no salvage value) is used for financial reporting. For tax purposes, MACRS depreciation is 42,000 for 2015.
• Interest received on tax exempt Iowa State bonds was $9,000.
• Pretax financial income is $600,000. The tax rate is 30%.

1) Find out the taxable income for 2015.

2)  Prepare the journal entry to record income taxes for 2015.

Answer 1

1

Particulars	Amount ($)	Amount ($)
Pretax Financial Income		600000
Less: Permanent Differences
Tax exempt interest (Iowa State Bonds)		(9000)
Less: Temporary Difference
Installment sales ($420000 - $280000)	(140000)
Extra Depreciation (MACRS - Straight line depreciation) ($42000 - $30000)	(12000)	(152000)
Taxable Income for 2015		439000

2

Particulars	Debit ($)	Credit ($)
Income Tax Expense	177300
To Deferred Tax Liability (Depreciation and Installment sales difference X 30%) [($140000 + $12000) X 30%]		45600
To Income Tax Payable (Taxable income X 30%) ($439000 X 30%)		131700