Complete the following exercise. Submit journal entries in an Excel file and written segments in an MS Word document. Label each question clearly.
Johnny Bravo Company began operations in 2012 and has provided the following information.
1. Pretax financial income for 2012 is $100,000.
2. The tax rate enacted for 2012 and future years is 40%.
3. Differences between the 2012 income statement and tax return are listed below.
(a) Warranty expense accrued for financial reporting purposes amounts to $5,000. Warranty deductions
per the tax return amount to $2,000.
(b) Gross profit on construction contracts using the percentage-of-completion method for book purposes
amounts to $92,000. Gross profit on construction contracts for tax purposes amounts to $62,000.
(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 earned on an investment in tax-exempt municipal bonds amounts to $1,400.
4. Taxable income is expected for the next few years.
