Reference no: EM132344876

Question

Kruger Industrial Smoothing Inc. reports pre-tax net income for the fiscal year ended June 30, 2017 of $325,000. Included in this amount are the following:

· Interest on Lower Perkiomen School District bonds o f $8,000

· Book depreciation of $25,000: tax depreciation $35,500

· Bad debt direct write offs $6,000: addition to allowance for bad debts $12,000

· Health code violation penalty paid $2,500

· Accrued estimated warranty repair at year-end $18,000

· Key-man life insurance premiums $5,000

· Le Nez Etoufé restaurant bills for the year - $1,600

· Office rent payable to Clarence Kruger (85% shareholder of Kruger Industrial) $10,000

Requirements:

a) Identify each item above as a permanent(p) or temporary (t) difference

b) Calculate book taxable income and tax and tax return taxable income and tax (use corporate rates - Appendix C - p. 614)

c) Prepare journal entry to record tax expense per books, income taxes payable and deferred taxes payable or deferred tax asset

d) Assume that in fiscal year 6/18, half of warranty accrual is paid and half of rent accrual is paid. Book depreciation is $18,000 and tax depreciation is $14,000. Pre-tax net income per books is $250,000. Perform steps a) - c) above for fiscal year ended 6/30/18.