Reference no: EM132727002

Ccc Inc. is in its first and second years of operations and has five differences between pretax accounting income and taxable income:

1. Fixed assets, $150,000 historical cost, are depreciated straight-line over three years for the financial statements and are depreciated straight-line over two years for tax purposes.

2. Warranty expenses of $140,000 are accrued for financial statement purposes, but the tax deduction won't be available until the warranty expenses are paid, expected evenly over the next 2 years ($70,000 per year).

3. Municipal bond interest is received from investments in municipal bonds over the two years of $70,000 in 2016 and $60,000 in 2017.

4. Subscription Revenue $120,000 is deferred on the 2016 financial statements as Unearned Revenue. For tax purposes, the revenue must be reported as soon as the contract is signed. For book purposes, the $120,000 will be earned in 2017.

5. Installment sale gains of $65,000 are reported in 2016 and 2017. For financial statements, all of the gain is reported in 2016. Ccc has pretax accounting income of $300,000 in 2016 and $450,000 in 2017. The statutory tax rate is 40%.

Problem 1: Calculate Ccc taxable income and income tax payable for 2016 and 2017.

Problem 2: Calculate the balance in Ccc deferred tax asset and liability accounts at the end of 2016 and 2017.

Problem 3: prepare an effective tax rate reconciliation for 2016 and 2017.