The records for Good Co. show this data for 2016, the first year of the company:

Gross profit on installment sales recorded on the books was $200,000. Of this, only $150,000 was reported for tax purposes.

Life insurance on officers was $3,800.

Machinery was acquired in January for $300,000. Straight-line depreciation over a ten-year period (no salvage value) is used. For taxes, MACRS depreciation is used and Good may deduct 14% of the cost for 2016.

Interest received on tax-exempt Iowa State bonds was $9,000.

The estimated warranty liability on the books related to 2016 sales was $19,600. Of this, only $13,600 could be deductible for tax purposes. The remainder will be incurred in 2017.

Pretax financial income is $250,000. The tax rate is 30%.

REQUIRED: (a) Prepare a schedule starting with pretax financial income and compute taxable income.

(b) Calculate the amount of deferred tax asset or liability that is required as of the end of 2016.

(c) Prepare the journal entry to record income taxes for 2016.

(d) Calculate net income for 2016.

(e) Calculate the effective income tax rate for 2016.

(f) Suppose that the Company believes it is not more likely than not that it will be able to realize its deferred tax asset due to future expected losses. What would GAAP require the Company to do in this circumstance?

(g) Suppose instead that the Company does expect to earn income in future years. However, it believes that its calculation of the book/tax difference associated with the installment sale is not likely to be sustained upon examination. What would GAAP require the Company to do in this circumstance?