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Question: Wise Company began operations at the beginning of 2015. The following information pertains to this company.

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:

(a) Warranty expense accrued for financial reporting purposes amounts to $7,000. Warranty deductions per the tax return amount to $2,000.

(b) Gross profit on construction contracts using the percentage-of-completion method per books amounts to $92,000. Gross profit on construction contracts for tax purposes amounts to $67,000.

(c) Depreciation of property, plant, and equipment for financial reporting purposes amounts to $60,000. Depreciation of these assets amounts to $80,000 for the tax return.

(d) A $3,500 fine paid for violation of pollution laws was deducted in computing pretax financial income.

(e) Interest revenue recognized on an investment in tax-exempt municipal bonds amounts to $1,500.

(Assume (a) is short-term in nature; assume (b) and (c) are long-term in nature.)

4. Taxable income is expected for the next few years compute taxable income for 2015

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M93073781

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