Assume the following facts for Munoz Company in 2016. Munoz reported pretax financial income of $ 800,000. In addition, Munoz reported the following differences between its pretax financial income and taxable income:  Interest income of $ 80,000 was received during 2016 from an investment in municipal bonds. This income is exempt for tax purposes.  Rent income of $ 40,000 was collected in 2015 and included for tax purposes during that year. For financial statement purposes, it will be reported as earned equally in 2016 and 2017. An asset with a 5 year life was purchased during 2016; straight line depreciation for book purposes was $ 40,000. MACRS depreciation expense for 2016 was $ 100,000. Warranty expense of $ 20,000 was recognized on the 2016 income statement, while $ 5,000 was recognized for tax purposes. (Assume a 1 year warranty contract.) The balance of the Deferred Tax Asset account (debit) at January 1, 2016, was $ 16,000 as a result of the rent income temporary difference. The tax rate for all years was 40%. Munoz has positive verifiable evidence of future taxable income.
Required:
1. Calculate the amount of Munoz’s 2016 taxable income.
2. Prepare Munoz’s income tax journal entry at the end of 2016.
3. Calculate Munoz’s effective income tax rate for 2016.