Johnny Bravo Company began operations in 2015 and has provided the following information.
1. Pretax financial income for 2015 is $100,000.
2. The tax rate enacted for 2015 and future years is 40%.
3. Differences between the 2015 income statement and tax return are listed below.
1. Warranty expense accrued for financial reporting purposes amounts to $5,000. Warranty deductions per the tax return amount to $2,000.
2. Gross profit on construction contracts using the percentage-of-completion method for book purposes amounts to $92,000. Gross profit on construction contracts for tax purposes amounts to $62,000.
3. Depreciation of property, plant, and equipment for financial reporting purposes amounts to $60,000.
4. Depreciation of these assets amounts to $80,000 for the tax return.
5. A $3,500 fine paid for violation of pollution laws was deducted in computing pretax financial income.
6. Interest revenue earned on an investment in tax-exempt municipal bonds amounts to $1,400.
4. Taxable income is expected for the next few years.
*Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2015. (1-6 above)
*Draft the income tax expense section of the income statement, beginning with Income before income taxes