Problem
Tess Corp. is in its first year of operation. The company has pretax financial income of $200,000. The company has the following items recorded in its records. No estimated tax payments were made during 2020.
Premium of life insurance for its key officers 22,500
Book depreciation in excess of tax depreciation 800
Interest on municipal bonds 7,500
Warranty expense 3,500
Actual warranty repairs 5,500
Bad debt expense 4,200
Beginning balance in allowances for uncollectible accounts 500
End balance in allowances for uncollectible accounts 800
Tax rates for 2020 and future years 20%
Task
1. Determine taxable income for 2020.
2. Prepare the journal entry to record income taxes for 2020.
3. Prepare the income tax expense section of the income statement for the year ended Dec. 31, 2020.
4. Indicate how the income tax items should be presented on the balance sheet for 2020.