Taxable income and Pre-tax financial income would be identical for Urmila Inc. for 2019,2020, and 2021 except for the following items: (i) Installment sales gross profit recognized and collected
(ii) Estimated warranty cost
(iii) Tax-exempt income from muni bonds of $5,000 each year Other details are as follows:
2019 2020 2021
1 Pre-tax financial income 174,000
2a Installment sales recognized 24,000 0 0
2b Installment sales cash collected 8000 8000 8000
3a Warranty Cost Accrued 15000 0 0
3b Warranty expenditures (cash) 5000 5000 5000
4a Unearned Rent Revenue collected 8000 0 0
4b Rent Revenue 4000 4000 0
5 Enacted Tax Rates 20% 20% 20%
6 In view of the pandemic, in 2019 the company believes that it is more likely than not that the deferred tax asset will not be realized
7 Sales revenue in the pandemic held up well. Pre-tax financial income was $150000.
Instructions:
1. Compute taxable income for 2019 Prepare a schedule to compute deferred tax assets and liabilities for 2019.
2. Prepare a journal entry to record income taxes payables, deferred taxes, income expense and the creation/reversal of valuation allowance if needed
3. Compute taxable income for 2020 Prepare a schedule to compute deferred tax assets and liabilities for 2020
4. Prepare a journal entry to record income taxes payables, deferred taxes, income expense and the creation/reversal of valuation allowance if needed