12.The records for Ivanhoe Co. show this data for 2021:● Gross profit on installment sales recorded on the books was $350,000. Gross profit from collections of installment receivables was $210,000.● Life insurance on officers was $3,100.● Machinery was acquired in January for $230,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Ivanhoe may deduct 14% for 2021.● Interest received on tax exempt Iowa State bonds was $8,300.● The estimated warranty liability related to 2021 sales was $20,900. Repair costs under warranties during 2021 were $12,900. The remainder will be incurred in 2022.● Pretax financial income is $530,000. The tax rate is 20%.(a) Prepare a schedule starting with pretax financial income and compute taxable income. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)Schedule of Pretax Financial Incomeand Taxable Income for 2021 $ $ Save for Later Attempts: 0 of 1 usedSubmit Answer (b)The parts of this question must be completed in order. This part will be available when you complete the part above.

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Individual Income Taxes

43rd Edition

ISBN:9780357109731

Author:Hoffman

Publisher:Hoffman

Chapter18: Accounting Periods And Methods

Section: Chapter Questions

Problem 49P

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Prepare a schedule starting with pretax financial income and compute taxable income. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Schedule of Pretax Financial Income and Taxable Income for 2021
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Pretax financial income is the income which the company has earned during the year before the income tax expenses are deducted from it. While as, there may exists the difference between the pretax financial income and taxable income of the same period is because that there may exists certain income which are exempted from the tax but which has been added as income in the financial income so it must be deducted from the financial income in order to derive the taxable income.

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LO.4, 7 In December 2019, Carl Corporation sold land it held as an investment. The corporation received 50,000 in 2019 and a note payable (with adequate interest) for 150,000 to be paid in 2021. Carl Corporations cost of the land was 80,000. The corporation has a 90,000 net capital loss carryover that will expire in 2019. Should Carl Corporation report the sale in 2019 or use the installment method to report the income as payments are received?
Gray Companys financial statements showed income before income taxes of 4,030,000 for the year ended December 31, 2020, and 3,330,000 for the year ended December 31, 2019. Additional information is as follows: Capital expenditures were 2,800,000 in 2020 and 4,000,000 in 2019. Included in the 2020 capital expenditures is equipment purchased for 1,000,000 on January 1, 2020, with no salvage value. Gray used straight-line depreciation based on a 10-year estimated life in its financial statements. As a result of additional information now available, it is estimated that this equipment should have only an 8-year life. Gray made an error in its financial statements that should be regarded as material. A payment of 180,000 was made in January 2020 and charged to expense in 2020 for insurance premiums applicable to policies commencing and expiring in 2019. No liability had been recorded for this item at December 31, 2019. The allowance for doubtful accounts reflected in Grays financial statements was 7,000 at December 31, 2020, and 97,000 at December 31, 2019. During 2020, 90,000 of uncollectible receivables were written off against the allowance for doubtful accounts. In 2019, the provision for doubtful accounts was based on a percentage of net sales. The 2020 provision has not yet been recorded. Net sales were 58,500,000 for the year ended December 31, 2020, and 49,230,000 for the year ended December 31, 2019. Based on the latest available facts, the 2020 provision for doubtful accounts is estimated to be 0.2% of net sales. A review of the estimated warranty liability at December 31, 2020, which is included in other liabilities in Grays financial statements, has disclosed that this estimated liability should be increased 170,000. Gray has two large blast furnaces that it uses in its manufacturing process. These furnaces must be periodically relined. Furnace A was relined in January 2014 at a cost of 230,000 and in January 2019 at a cost of 280,000. Furnace B was relined for the first time in January 2020 at a cost of 300,000. In Grays financial statements, these costs were expensed as incurred. Since a relining will last for 5 years, Grays management feels it would be preferable to capitalize and depreciate the cost of the relining over the productive life of the relining. Gray has decided to nuke a change in accounting principle from expensing relining costs as incurred to capitalizing them and depreciating them over their productive life on a straight-line basis with a full years depreciation in the year of relining. This change meets the requirements for a change in accounting principle under GAAP. Required: 1. For the years ended December 31, 2020 and 2019, prepare a worksheet reconciling income before income taxes as given previously with income before income taxes as adjusted for the preceding additional information. Show supporting computations in good form. Ignore income taxes and deferred tax considerations in your answer. The worksheet should have the following format: 2. As of January 1, 2020, compute the retrospective adjustment of retained earnings for the change in accounting principle from expensing to capitalizing relining costs. Ignore income taxes and deferred tax considerations in your answer.
Comprehensive Colt Company reports pretax financial income of 143,000 in 2019. In addition to pretax income from continuing operations (of which revenues are 295,000), the following items are included in this pretax income: Colts taxable income totals 93,000 in 2019. The difference between the pretax financial income and the taxable income is due to the excess of tax depreciation over financial depreciation on assets used in continuing operations. At the beginning of 2019, Colt had a retained earnings balance of 310.000 and a deferred tax liability of 8,100. During 2019, Colt declared and paid dividends of 48,000. It is subject to tax rates of 15% on the first 50,000 of income and 30% on income in excess of 50,000. Based on proper interperiod tax allocation procedures, Colt has determined that its 2019 ending deferred tax liability is 14,100. Required: 1. Prepare a schedule for Colt to allocate the total 2019 income tax expense to the various components of pretax income. 2. Prepare Colts income tax journal entry at the end of 2019. 3. Prepare Colts 2019 income statement. 4. Prepare Colts 2019 statement of retained earnings. 5. Show the related income tax disclosures on Colts December 31, 2019, balance sheet.

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●		Gross profit on installment sales recorded on the books was $350,000. Gross profit from collections of installment receivables was $210,000.
●		Life insurance on officers was $3,100.
●		Machinery was acquired in January for $230,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Ivanhoe may deduct 14% for 2021.
●		Interest received on tax exempt Iowa State bonds was $8,300.
●		The estimated warranty liability related to 2021 sales was $20,900. Repair costs under warranties during 2021 were $12,900. The remainder will be incurred in 2022.
●		Pretax financial income is $530,000. The tax rate is 20%.