Answer:
1. Income tax payable for 2021 = (Pretax accounting income - Interest income on municipal governmental bonds - Depreciation + (Warranty expense reported - Actual Warranty) ) * Income Tax rate
= (978,000 - 32,000 - 58,000 + (26,000 - 10,000)) * 25%
= $226,000
Income tax expense for 2021 = (Pretax Income - Interest income on municipal governmental bonds) * 25%
= (978,000 - 32,000) * 25%
= $236,500
Deferred tax asset - Warranty
= (Warranty expense reported - Actual Warranty) * Income Tax rate
= (26,000 - 10,000)) * 25%
= $4,000
Deferred Tax liability
= Depreciation * Income Tax rate
= 58,000 * 25%
= $14,500
Journal entry
DR Income Tax Expense $236,500
Deferred Tax Asset $4,000
CR Income Tax Payable $226,000
Differed Tax liability $14.50
2. Net Income
= Pretax Accounting Income - Income tax expense
= 978,000 - 236,500
= $741,500
