Gallo Light began operations in 2018. The company sometimes sells used warehouses on an  installment basis. In those cases, Gallo Light reports income in its income statement in the year  of the sale. In its income tax return, though, Gallo Light reports installment income by the  installment method. Installment income in 2018 was $90,000, which Gallo Light expects to  collect equally over the next three years. The tax rate is 30%, but based on an enacted law, is  scheduled to become 35% in 2020.  Gallo Light's pretax accounting income from the 2018 income statement was $830,000, which  includes $40,000 of interest revenue from an investment in municipal bonds. There were no  differences between accounting income and taxable income other than those described above. Required: (1.) Prepare the appropriate journal entry to record Gallo Light's 2018 income taxes. Show  calculations. (2.) What is Gallo Light's 2018 net income?

Early in 2020, Swifty Equipment Company sold 600 Rollomatics at $5,700 each. During 2020, Swifty spent $20,000 servicing the 2- year assurance warranties that accompany the Rollomatic. All sales transactions are on a cash basis. (a) Prepare 2020 entries for Swifty. Assume that Swifty estimates the total cost of servicing the warranties in the second year will be $37,000. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit List of Accounts

Isaac Inc. began operations in January 2021. For some property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer's installment payments. In 2021, Isaac had $676 million in sales of this type. Scheduled collections for these sales are as follows:            2021 $ 83 million   2022   137 million   2023   129 million   2024   162 million   2025   165 million     $ 676 million      Assume that Isaac has a 25% income tax rate and that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses, what deferred tax liability would Isaac report in its year-end 2021 balance sheet?

Tamarisk Company, which began operations at the beginning of 2018, produces various products on a contract basis. Each contract generates a gross profit of $85,000. Some of Tamarisk’s contracts provide for the customer to pay on an installment basis. Under these contracts, Tamarisk collects one-fifth of the contract revenue in each of the following four years. For financial reporting purposes, the company recognizes gross profit in the year of completion (accrual basis). For tax purposes, Tamarisk recognizes gross profit in the year cash is collected (installment basis).Presented below is information related to Tamarisk’s operations for 2020: 1.   In 2020, the company completed seven contracts that allow for the customer to pay on an installment basis. Tamarisk recognized the related gross profit of $595,000 for financial reporting purposes. It reported only $119,000 of gross profit on installment sales on the 2020 tax return. The company expects future collections on the related…

Carla Vista Resellers Ltd. (CVRL) sells gently used and refurbished appliances. The company provides a three-month warranty that is included in the cost of the appliance. Claims under the warranties vary from replacing defective parts to providing customers with new appliances if repairs cannot be made. During 2024, the estimated cost related to the three-month warranties was $36,480, of which $24,000 had been incurred before year end ($18,240 on replacement appliances and $5,760 for parts). For an additional charge of $144, CVRL also offers extended warranty coverage for three years on its refurbished appliances. This amount is expected to cover the costs associated with the extended warranties. During 2024, CVRL sold 480 three-year warranty plans. The costs incurred during the year for repairs and replacements under these plans amounted to $14,400. Based on experience, the company estimates that its total warranty costs over the three-year coverage period will be $43,200, which it…

During the first quarter of 2021, a company sold on credit, 2,000 truck tires at $85 each plus harmonized sales tax (HST) of 13%. The HST is paid to the federal government. Prepare the following journal entries a) On March 31, to record the sale of truck tires in the first quarter. b) On April 30, to record payment of first quarter sales taxes to the government.

Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account.  Fleming Home Products introduced a new line of commercial awnings in 2020 that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 2% of sales. Sales of the awnings in 2020 were $3,600,000. Accordingly, warranty expense and a warranty liability of $72,000 were recorded in 2020. In late 2021, the company’s claims experience was evaluated, and it was determined that claims were far fewer than expected: 1% of sales rather than 2%. Sales of the awnings in 2021 were $4,100,000, and warranty expenditures in 2021 totaled $93,275. On December 30, 2017, Rival Industries acquired its office building…

XYZ Company manufactures equipment that are sold through installment. XYZ recognizes revenue on the year of sale for financial reporting and when installment payments are received for income tax purposes. In 2020, the company earned a gross profit of P6,000,000 for accounting and P1,500,000 for income tax purposes. In relation to its sales, XYZ also provides warranties for its equipment. Warranty costs are accrued as expense for financial reporting and recognized as deductible expense in the income tax return when paid. Accrued warranty expense for 2020 is P2,500,000, but only P500,000 of warranty costs are actually paid during the year.In addition, XYZ also earned P500,000 of interest, net of final withholding taxes, from its bank deposits. Interest income subject to final withholding taxes is non-taxable income for income tax purposes. The entity also paid P100,000 insurance premium on the life of its president in relation to an insurance policy where XYZ Company is the beneficiary.…

Early in 2020, Larkspur Equipment Company sold 600 Rollomatics at $5,800 each. During 2020, Larkspur spent $21,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All sales transactions are on a cash basis. Prepare 2020 entries for Larkspur assuming that the warranties are not an integral part of the sale (a service-type warranty). Assume that of the sales total, $58,000 relates to sales of warranty contracts.Warranty costs incurred in 2020 were $21,000. Estimate revenues to be recognized on a straight-line basis. Date Account Titles and Explanation Debit Credit

Perkin Corporation has determined that it qualifies for a tax credit in the amount of $120,000. For the current year, it has tax liability before credits of $75,000. It expects at least that amount of tax liability next year.  Required: If the excess credit is not refundable but may be carried forward, calculate the value of the credit. Assume Perkins uses a 4 percent discount rate to calculate present value.  If the excess credit is refundable, what is the value of the credit?