Integrated Systems, Inc., recognized service revenue of $300,000 on its financial statements in 2007. Assume, however, that the Tax Code requires this amount to be recognized for tax purposes in 2008. The taxable income for 2007 and 2008 is $2,000,000 and $2,500,000, respectively.
Assume a tax rate of 40%.
Prepare the journal entries to record the tax expense, deferred taxes, and taxes payable for 2007 and 2008, respectively.
In-Tune Audio Company warrants its products for one year. The estimated product warranty is 3% of sales. Assume that sales were $400,000 for January. In February, a customer received warranty repairs requiring $205 of parts and $300 of labor.
a. Record the adjusting entry required at January 31, the end of the first month of the current year, to record the accrued product warranty.
b. Record the entry for the warranty work provided in February.