King Company began operations at the beginning of 2008

The
King Company began operations at the beginning of 2008. The following information pertains to
this company.1. Pretax financial income for 2008 is $100,000.2. The tax rate enacted for 2008
and future years is 40%3. Differences between the 2008 income statement and tax return are
listed below:(a) Warranty expense accrued for financial reporting purposes amounts to $5,000.
Warranty deductions per the tax return amount to $2,000.(b) Gross profit on construction
contracts using the percentage-of-completion method for books amounts to $92,000. Gross
profit on construction contracts for tax purposes amounts to $62,000.(c) Depreciation of
property, plant, and equipment for financial reporting purposes amounts to $60,000.
Depreciation of these assets amounts to $80,000 for the tax return.(d) A $3,500 fine paid for
violation of pollution laws was deducted in computing pretax financial income.(e) Interest
revenue earned on an investment in tax-exempt municipal bonds amounts to $1,400. (Assume
(a) is short-term in nature; assume (b) and (c) are long-term in nature.)4. Taxable income is
expected for the next few years.Instructions(a) Compute taxable income for 2008.(b) Compute
the deferred taxes at December 31, 2008, that relate to the temporary differences described
above. Clearly label them as deferred tax asset or liability.(c) Prepare the journal entry to record
income tax expense, deferred taxes, and income taxes payable for 2008.(d) Draft the income
tax expense section of the income statement beginning with “Income before income
taxes.”View Solution:
King Company began operations at the beginning of 2008 The
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