Vilkhu Inc reported taxable income of $2,360,000 on its 2013 income tax return. The new controller had not been needed to take intermediate II in college, but knew enough to recognize that taxable income and pretax financial income were not always the same. As the junior auditor on Vilkhu's audit, you have come up with several probable differences between taxable income and pretax financial income and figure you better spend some time examination things out before presenting your worksheet on taxes to your audit senior:
- MACRS depreciation is $310,000 more than straight-line
- There were $145,000 of proceeds from a life insurance policy received after the premature demise of the scientist in change of R&D
- Vilkhu had obtained $107,000 of interest on its investments in municipal bonds
- Vilkhu had also obtained $340,000 of interest on its investments held as AFSS and HTMS.
- Vilkhu had spent $95,000 on premiums for life insurance for its key officers.
- Vilkhu also had reported installment sales revenues that were $315,000 bagger than the cash they had collected on the installment sales.
1. Evaluate pre-tax financial income. Be sure you have computations and labels because the audit senior will be taking your worksheet home to review.
2. If Vilkhu's income tax rate is 25 percent, then prepare the entries needed to record income taxes.
3. Purpose a partial income statement beginning with "Income before Income Tax Expense" for Vilkhu. The senior has to determine your performance on the audit, and you know this evaluation becomes part of the evaluation of the amount of the bonus you would be eligible for at yearend.