At the end of its first year of operations on December 31, 2010, the Midland Company reported pretax financial income of $100,000. An investigation of that income revealed the following items: Ba

At the end of its first year of operations on December 31, 2010, the Midland Company reported pretax financial income of $100,000. An investigation of that income revealed the following items:

• Bad debts expense of $12,000 was recognized. The accounts will be written off in 2011.

• Installment sales of $50,000 were recognized in financial income. These sales were accounted for by the installment sales method for income tax purposes. Only $20,000 was reported on the tax return.

• Warranty expenses of $16,000 were accrued for financial reporting purposes, but were not expected to result in a cash payment until 2011.

• Depreciation on the tax return exceeded depreciation for financial reporting purposes by $32,000.

Be sure to show your work Required: Compute taxable income

Leave a Comment