The records for Orkin Co. show this data for 2008:
• Gross profit on installment sales recorded on the books was $360,000. Gross profit from collections of installment receivables was $270,000.
• Life insurance on officers was $3,800.
• Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year life (no salvage value) is used. For tax purposes, MACRS depreciation is used and Orkin may deduct 14% for 2008.
• Interest received on tax exempt Iowa State bonds was $9,000.
• The estimated warranty liability related to 2008 sales was $19,600. Repair costs under warranties during 2008 were $13,600. The remainder will be incurred in 2009.
• Pretax financial income is $600,000. The tax rate is 30%.
Instructions:
(a) Prepare a schedule starting with pretax financial income and compute taxable income.
(b) Prepare the journal entry to record income taxes for 2008.