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Warr22e_IM_TM_Ch14 - Transparency Master 14-1 Bravara...

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Transparency Master 14-1 Bravara Corporation Income Statement For the Year Ended December 31, 2004 Net Sales ...................................... $1,200,000 Cost of merchandise sold .......... 410,000 Gross profit .................................. $ 790,000 Operating expenses: Salaries expense ..................... $300,000 Utilities expense ..................... 170,000 Advertising expense ............... 60,000 Depreciation expense ............. 43,000 Miscellaneous expense .......... 37,000 610,000 Income before income tax .......... $ 180,000
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Transparency Master 14-2 NET INCOME VS. TAXABLE INCOME The income statement for Gibson Corporation's year ended December 31, 2004, is as follows: Net Sales ................................................................................. $500,000 Cost of merchandise sold ..................................................... 200,000 Gross profit ............................................................................. $300,000 Operating expenses: Salaries expense ............................................................ $75,000 Utilities expense ............................................................. 30,000 Warranty expense .......................................................... 10,000 Depreciation expense .................................................... 15,000 Other expense ................................................................ 8,000 138,000 Income before income tax ..................................................... $162,000 Gibson has the following temporary differences: 1. Straight-line depreciation is used when preparing financial statements. Accel- erated depreciation is used for tax purposes. Gibson's depreciation expense for the year under accelerated methods is $27,000. 2. The amount shown on the financial statements for warranty expense is the es- timated cost of warranty repairs that will be made on all units sold this year. However, Gibson spent only $6,000 on warranty repairs this year. Warranty ex- penses must be paid in order to deduct them when preparing a tax return. Required: 1. Calculate the amount of taxable income that will be reported on Gibson's tax return. 2. Assume that Gibson's tax rate is 40%. Calculate the income taxes that will be paid now, based on Gibson's taxable income. 3. Calculate the income taxes that Gibson would have paid if the amount shown as "Income before Income Tax" on the financial statements was the amount on which Gibson was taxed. 4. Compute the taxes that Gibson has deferred to future years. This is the differ- ence between the numbers you calculated in #2 and #3. 5. Prepare the journal entry to record Gibson's income taxes (you may want to refer to the example in the text). 6. Complete Gibson's 2004 income statement, starting with Income before In- come Tax.
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Transparency Master 14-3 NET INCOME VS.
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