Task: Computation of taxable income.
The records for Bosch Co. show this data for 2011:
- Gross profit on installment sales recorded on the books was $360,000. Gross profit from collections of installment receivables was $270,000.
- Life insurance on officers was $3,800.
- Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Bosch may deduct 14% for 2011.
- Interest received on tax exempt Iowa State bonds was $9,000.
- The estimated warranty liability related to 2011 sales was $19,600. Repair costs under warranties during 2011 were $13,600. The remainder will be incurred in 2012.
- Pretax financial income is $600,000. The tax rate is 30%.
Instructions:
(a) Prepare a schedule starting with pretax financial income and compute taxable income.
(b) Prepare the journal entry to record income taxes for 2011.