Omega Corporation, a regular C corporation, presents you with the following partial bookincome statement for the current year:

Omega also provides the following partial balance sheet  information:

You have gathered the following additional information:

Depreciation for tax purposes is $128,000.

Of the $18,000 interest expense, $2,000 is allocable to a loan used to purchase the municipal bonds.

The warranty expense is an estimated amount for book purposes. Omega expects actual claims on these warranties to be filed and paid next year.

Your research determines that the fines and penalties are not deductible for tax purposes.

In the current year, Omega sold property using the installment method as follows:

Selling price ……………………………….  $30,000

Adjusted basis ……………………………. (21,000)

Gain ………………………………………..       $9,000

Omega obtains a $30,000 installment note receivable this year and will receive the $30,000 sales proceeds next year. For book purposes, Omega recognizes the $9,000 gain in the current year. For tax purposes, Omega will recognize the $9,000 gain next year when it receives the $30,000 sales proceeds.

Omega sold a significant portion of its stock portfolio in the current year. The $20,000 net loss per books from these stock sales includes the following components:

Long-term capital gain …………………………….  $15,000

Long-term capital loss …………………………….   (38,000)

Short-term capital gain ……………………………      3,000

1. Omega had no capital gains in prior years, so it cannot carry the net capital losses back.

2. Omega does not expect to realize capital gains next year, but it does expect sufficient capital gains within the next five years so that it can use the capital loss carryover before it expires. Thus, Omega determines that it needs no valuation allowance.

3. Omega has a $15,000 net operating loss carryover from last year, which it then expected to use in the next year (now the current year).

4. Qualified production activities income for the current year equals $300,000, which is less than taxable income before the U.S. production activities deduction. The applicable percentage is 9%.

5. Omega’s tax rate is 34% and will remain so in future years.

6. The beginning deferred tax asset pertains to the NOL carryover, and the beginning deferred tax liability pertains to fixed assets. Other deferred tax assets and deferred tax liabilities may arise in the current year.

7. Omega determines that it needs no adjustment for uncertain tax positions.

Required:

Perform the tax provision process steps as outlined in the text. For Step 11, just present partial income statement and balance sheet disclosures as allowed by the given facts.

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Sales S1,900,000 Cost of goods sold Gross profit Operating expenses 1.100.000) S800,000 S 80,000 Depreciation Interest expense Warranty expense Fines and penalties 18,000 12,000 10,000 Other business expenses Net operating income Other income (losses): 220,000 S460,000 Interest received on municipal bonds S 1,000 Inc ome on installment sale 9,000 Net losses on stock sales 120,000 (10.000) Net income before federal income taxes Book ах Beg. of Year End of Year Beg. of Year End of Year Installment note receivable S-0- 30,000-0 S 30,000 Minus: Unrecognized income on note 0001 ー Net basis of note receivable 30,000 21,000 Tax-exempt bonds 18,000 18,000 18,000 18,000 Current deferred asset 5,100 100,000 400,000 Investment stocks 40,000 100,000 40,000 Fixed assets 400,000 400,000D 400,000 Minus: Accumulated depreciation 40,000 120.000) 80000 208,000 Net basis of fixed assets 360,000 280,000 320,000 192,000 Liability for warranties 12,000 Noncurrent deferred tax liability 13600