Chocolate Pie Company's taxable income and other data for 2020 are presented below: Taxable Income $ 500,000 Interest received on municipal bonds 55,000 Estimated bad debt expense (not written off) 30,000 Cash expenditures for warranties 98,000 Product warranty expense for accounting purposes 152,000 Gross profit on installment sales for 2020 170,000 Gross profit recognized for tax purposes based on 2020 installment sales 150,000 Required: a. Calculate 2020 pretax financial income. b. For each item, explain why there is a difference if any exists, between how it is treated for tax purposes and pretax financial income.
Chocolate Pie Company's taxable income and other data for 2020 are presented below: Taxable Income $ 500,000 Interest received on municipal bonds 55,000 Estimated bad debt expense (not written off) 30,000 Cash expenditures for warranties 98,000 Product warranty expense for accounting purposes 152,000 Gross profit on installment sales for 2020 170,000 Gross profit recognized for tax purposes based on 2020 installment sales 150,000 Required: a. Calculate 2020 pretax financial income. b. For each item, explain why there is a difference if any exists, between how it is treated for tax purposes and pretax financial income.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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| Chocolate Pie Company's taxable income and other data for 2020 are presented below: | |||
| Taxable Income | $ 500,000 | ||
| Interest received on municipal bonds | 55,000 | ||
| Estimated |
30,000 | ||
| Cash expenditures for warranties | 98,000 | ||
| Product warranty expense for accounting purposes | 152,000 | ||
| Gross profit on installment sales for 2020 | 170,000 | ||
| Gross profit recognized for tax purposes based on 2020 installment sales | 150,000 | ||
| Required: | |||
| a. Calculate 2020 pretax financial income. | |||
| b. For each item, explain why there is a difference if any exists, between how it is treated for tax purposes and pretax financial income. | |||
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