Problem
The accounting records of Pinecone Inc. show the following data for 2014.
Life insurance expense on officers was $7,000.
Equipment was acquired in early January for $450,000. Straight-line depreciation over a 6-year life is used, with no salvage value. For tax purposes, Pinecone used a 30% rate to calculate depreciation.
Interest revenue on municipal bonds totaled $3,600.
Product warranties were estimated to be $90,000 in 2014. Actual repair and labor costs related to the warranties in 2014 were $24,000. The remainder is estimated to be paid evenly in 2015 and 2016.
Sales on an accrual basis were $500,000. For tax purposes, $400,000 was recorded on the installment-sales method.
Fines incurred for securities violations were $10,600.
Pretax financial income was $460,000. The tax rate is 40%.
Instructions
(a) Prepare a schedule starting with pretax financial income in 2014 and ending with taxable income in 2014.
(b) Prepare the journal entry for 2014 to record income taxes payable, income tax expense, and deferred income taxes.