In 2017, Franklin Company reported pretax GAAP income of$500,000. The tax rate was 40%. The following items may be relevantto FranklinΓ’ΒΒs calculation of tax expense in 2017.
In 2017, Franklin sold land under an installment sales contractand included total gross profit of $200,000 in GAAP income. Only$120,000 of the gross profit is taxable in 2017. The remainder ofthe gross profit is taxable in 2018.
In 2017, Franklin recorded depreciation for financial accountingof $800,000. The allowable tax depreciation for 2017 was$850,000.
In 2017, Franklin recorded an expense for a $20,000 fine paidfor violating pollution laws.
In 2017, Franklin recorded warranty expense of $50,000. Onlyactual warranty costs paid in 2017 of $10,000 are deductible fortax purposes.
In 2017, Franklin included $70,000 for unrealized holding gainson trading securities in GAAP income. This amount is not includedin taxable income until the security is sold.
Requirement 1: Compute 2017 taxable income.
Requirement 2: Compute 2017 tax payable.
Requirement 3: Determine the change(s) in the deferredtax account(s).
Requirement 4: Record the 2017 tax expenseentry.
Requirement 5: Determine 2017 net income.