Question - Vilkhu Inc reported taxable income of $2,360,000 on its 2013 income tax return. The new controller had not been required to take intermediate II in college, but knew enough to know 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 possible differences between taxable income and pretax financial income and figure you better spend some time checking 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 untimely demise of the scientist in change of R&D
• Vilkhu had received $107,000 of interest on its investments in municipal bonds
• Vilkhu had also received $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 higher than the cash they had collected on the installment sales.

1. Compute pre-tax financial income. Be sure you have labels and computations because the audit senior will be taking your worksheet home to review.

2. If Vilkhu's income tax rate is 25%, then prepare the entr(y/ies) needed to record income taxes.

3. Prepare a partial income statement beginning with "Income before Income Tax Expense" for Vilkhu. The senior has to evaluate your performance on the audit, and you know this evaluation becomes part of the determination of the amount of the bonus you would be eligible for at yearend.