(Answered)-Gonzo Co. has two temporary tax differences at the end of 2016 - (2025 Updated Original AI-Free Solution

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Gonzo Co. has two temporary tax differences at the end of 2016 between its books per GAAP and tax purposes 1. The first difference of $230,000 stens from installment sales. The sales are recorded for GAAP purposes in the year of sale but are not taxed until the cash is received. The portion of the installment sales to be received within one year ($30,000) is classified as a current receivable. The portion of the installment sales to be received after one year is classified as a noncurrent receivable ($200,000) 2. The second difference of $35,000 results from the accrual of the estimated warranty costs. Under the matching principle, the loss is recorded for GAAP purposes in the year of sale (i.e when probably and reasonably estimated) but the loss is not deducted for tax purposes until cash is actually paid in future years. All of the warranty liability is considered noncurrent because it is expected to be settled in years later than the year immediately following the year of sale Gonzos accounting department has developed a schedule of future taxable and deductible amounts related to these temporary differences as follows 2017 2018 2019 2020 Total Installment sales $??????? 30,000 $??????? 60,000 $??????? 60,000 $??????? 80,000 $??????? 230,000 Warranty costs $??????? 15,000 $??????? 20,000 $????????? 35,000 The enacted tax rates are 34% for 2016-18 and 40% for 2019-20. At the beginning of 2016, the company had no deffered income taxes on its balance sheet. Taxable income for the 2016 tax return is $400,000. Taxable income is expected in all future years Instructions 1. Calculate the pre-tax GAAP income for 2016 2. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. 3. Show how deferred income taxes would appear on the balance sheet at the end of 2016. Include dollar amounts 4. Prepare the bottom section of the 2016 GAAP income statement that contains the followinglines: net income before income tax, income tax expense or benefit (showing both the current and deferred portions) and net income p9/`W/