Crane Company, which began operations at the beginning of 2018, produces various products on a contract...

 

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Crane Company, which began operations at the beginning of 2018, produces various products on a contract basis. Each contract generates a gross profit of $75,000. Some of Crane's contracts provide for the customer to pay on an instalment basis. Under these contracts, Crane collects one-fifth of the contract revenue in each of the following four years. For financial reporting purposes, the company recognizes gross profit in the year of completion (accrual basis). For tax purposes, Crane recognizes gross profit in the year cash is collected (installment basis). Presented below is information related to Crane's operations for 2020: In 2020, the company completed seven contracts that allow for the customer to pay on an installment basis. Crane recognized the related gross profit of $525,000 for financial reporting purposes. It reported only $105,000 of gross profit on installment sales on the 2020 tax return. The company expects future collections on the related installment receivables to result in taxable amounts of $105,000 in each of the next four years. In 2020, nontaxable municipal bond interest revenue was $25,000. During 2020, nondeductible fines and penalties of $23,000 were paid. Pretax financial income for 2020 amounts to $490,000. Tax rates (enacted before the end of 2020) are 30% for 2020 and 20% for 2021 and later. The accounting period is the calendar year. The company is expected to have taxable income in all future years. 5. 6. 7. 8. The company has no deferred tax assets or liabilities at the end of 2019. Prepare the journal entry to record income taxes for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) 234 Crane Company, which began operations at the beginning of 2018, produces various products on a contract basis. Each contract generates a gross profit of $75,000. Some of Crane's contracts provide for the customer to pay on an instalment basis. Under these contracts, Crane collects one-fifth of the contract revenue in each of the following four years. For financial reporting purposes, the company recognizes gross profit in the year of completion (accrual basis). For tax purposes, Crane recognizes gross profit in the year cash is collected (installment basis). Presented below is information related to Crane's operations for 2020: In 2020, the company completed seven contracts that allow for the customer to pay on an installment basis. Crane recognized the related gross profit of $525,000 for financial reporting purposes. It reported only $105,000 of gross profit on installment sales on the 2020 tax return. The company expects future collections on the related installment receivables to result in taxable amounts of $105,000 in each of the next four years. In 2020, nontaxable municipal bond interest revenue was $25,000. During 2020, nondeductible fines and penalties of $23,000 were paid. Pretax financial income for 2020 amounts to $490,000. Tax rates (enacted before the end of 2020) are 30% for 2020 and 20% for 2021 and later. The accounting period is the calendar year. The company is expected to have taxable income in all future years. 5. 6. 7. 8. The company has no deferred tax assets or liabilities at the end of 2019. Prepare the journal entry to record income taxes for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) 234