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You are required to make a copy of the tax return that Celia Brown, the previous controller, prepared, and then begin comparing the tax return to the draft of the company's financial statements.

You prepare the following schedule for this year:



Panache, Inc.
Book/Tax Differences



Financial Statement Amount

Tax Return Amount



Officers' life insurance premiums


Interest revenue on municipal bonds


Product warranty costs


Gross profit on installment sales


In the tax file, you find the following schedule prepared by Ms. Brown:


Panache, Inc.
Deferred Tax Assets & Liabilities
December 31, 2010



Item Amount

Deferred Account Balance

Deferred Tax Asset




Deferred Tax Liabilities




Installment Sales


The company's current tax rate is 30 percent, and no changes in future tax rates have been enacted.

You are required to:

•Enter the information about book or tax differences in an Excel spreadsheet, and identify which differences are permanent and which are temporary.
•Assuming Panache's operating income as reported on the draft of the income statement is $120,000, compute taxable income and prepare the income tax entry needed in the same Excel spreadsheet. Also, assume the company expects to continue to be profitable and have taxable income indefinitely.

describeing what income tax items will appear on the company's balance sheet for December 31, 2010.


Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M940137

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