Problem
Omaha Inc. reports $156,000 financial income for 2020, before adjusting the following differences for tax reporting purpose.
• Pollution fine of $25,000 was paid and recorded.
• Installment sales result in gross profit recognized for financial reporting purposes in excess of gross profit recognized for tax purposes by $13,000.
• Warranty expenses deducted for financial reporting exceeded warranty costs deducted for income taxes by $10,500.
• Percentage depletion deducted for income taxes exceeded cost depletion deducted for financial reporting by $32,500.
The income tax rate is 20% rate for all years.
Task
• Compute the Company's taxable income for the current year (show schedule).
• Prepare the income tax journal entry of the Company for the current year.
• Prepare the income tax expense section of the income statement, beginning with "Income before taxes."