The following information is provided: Income before taxes = $900,000 Income before taxes included the following Interest income of = $80,000 (from municipal bonds) Rental income was collected in advance in 2013 and earned in 2014 = $20,000 Depreciation per books = $40,000 and per income taxes = $100,000. Warranty expense in 2014 was $20,000 but for tax purposed only $5,000 was deductible. Assume that at the beginning of 2014 the deferred tax asset balance= $8,000 due to the rent income. Tax rate for 2014 and the foreseeable future is 40%.
Required: a. Calculate taxable income b. Make the necessary tax entry. Be sure to include the amounts for tax expense and deferred taxes.