Canter, Gallop and Jump, Inc. began operations in 2011. In 2012, pretax financial income was $125,000, which included the following:
- General liability and property insurance expense of $120,000, representing one-fourth of a $480,000, four-year casualty and liability insurance policy paid for entirely in 2012.
- Insurance premiums expense of $75,000 on life insurance policies for key company officers. The company is named as the beneficiary on the policy.
- Investment income of $150,000, of which $67,500 is municipal bond interest income.
- Accrued warranty expense of $200,000. Actual warranty expenditures are expected to be $75,000 in 2013, $50,000 in both 2014 and 2015, and $25,000 in 2016.
- One piece of equipment with a five-year useful life was acquired in 2011. The equipment cost $500,000 and has no salvage value. Depreciation is recorded using the straight-line method for financial reporting purposes. MACRS (Modified Accelerated Cost Recovery System) is used on the tax return. The table below shows depreciation for book and tax purposes.
|Depreciation Year||Book Depreciation||Tax Depreciation|
- The enacted tax rates are 20% in 2011 and 2012, 30% in 2013, and 35% beyond 2013. Round all journal entries and computations to the nearest whole dollar.
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