You will review the income tax return of Panache Inc. and prepare the necessary journal entries related to income taxes.
You are required to make a copy of the tax return that Celia Brown, the previous controller, prepared, and then begin comparing the tax return to the draft of the company's financial statements.
You prepare the following schedule for this year:
Panache, Inc.Book/Tax Differences2014
Description
Financial Statement Amount
Tax Return Amount
Depreciation
$48,000
$40,000
Officers’ life insurance premiums
$15,000
0
Interest revenue on municipal bonds
$25,000
Product warranty costs
$27,000
$20,000
Gross profit on installment sales
$91,000
$80,000
In the tax file, you find the following schedule prepared by Ms. Brown:
Panache, Inc.Deferred Tax Assets & LiabilitiesDecember 31, 2015
Item Amount
Deferred Account Balance
Deferred Tax Asset
Warranties
$49,500
$14,850
Deferred Tax Liabilities
$41,800
$12,540
Installment Sales
$15,700
$4,710
The company's current tax rate is 30%, and no changes in future tax rates have been enacted.
Tasks: