Accounting income for the Kolbow Company for 2005 (its first year of operations) was $1,700,000. Differences between book and income were as follows:

Municipal bond interest (permanent)  ………,,…………    $ 75,000

Excess of tax over book depreciation ……………………     240,000

Excess of installment sales over collections    …,…….……30,000

Compensatory stock option expense  …..…………………   37,000

Scheduled temporary differences over the next several years are:

Parentheses above indicate a deduction in the previous schedule. Enacted tax rates are as follows:

2005…………………            40%

2006…………………            40%

2007…………………            35%

2008…………………            30%

2009…………………            30%

Required:

(a)Determine the taxable income for2005.

(b)Prepare a schedule and do the tax entries for 2005.

(c)Taxable income in 2006 is $1,400,000. One new temporary difference has arisen. Bad-debt expense of $22,000 occurred during 2001, but the actual write-off (which is when the tax deduction is taken) is not expected to occur until 2002. Prepare a schedule and do the tax entries for2006.

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2006 2007 20082009 Depreciation (S160,000) $100,000 S140,000 S160,000 Excess of installment collections over sales Compensatory stock option expense 20,000 10,000 (S37,000)