Question: In 2017, Franklin Company reported pretax GAAP income of $500,000. The tax rate was 40%. The following items may be relevant to Franklin's calculation of tax expense in 2017.
In 2017, Franklin sold land under an installment sales contract and included total gross profit of $200,000 in GAAP income. Only $120,000 of the gross profit is taxable in 2017. The remainder of the gross profit is taxable in 2018.
In 2017, Franklin recorded depreciation for financial accounting of $800,000. The allowable tax depreciation for 2017 was $850,000.
In 2017, Franklin recorded an expense for a $20,000 fine paid for violating pollution laws.
In 2017, Franklin recorded warranty expense of $50,000. Only actual warranty costs paid in 2017 of $10,000 are deductible for tax purposes.
In 2017, Franklin included $70,000 for unrealized holding gains on trading securities in GAAP income. This amount is not included in taxable income until the security is sold.
Requirement 1: Compute 2017 taxable income.
Requirement 2: Compute 2017 tax payable.
Requirement 3: Determine the change(s) in the deferred tax account(s).
Requirement 4: Record the 2017 tax expense entry.
Requirement 5: Determine 2017 net income.