Hw Week 2

California Surplus Inc. qualifies to use the installment-sales method for tax purposes and sold an investment on an installment basis. The total gain of $75,000 was reported for financial reporting purposes in the period of sale. The installment period is 3 years; one-third of the sale price is collected in 2012 and the rest in 2013and 2014. The tax rate was 35% in 2012, and 30% in 2013 and 30% in 2014. The accounting and tax data is shown below. | | |

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| | Financial Accounting | Tax Return | | | | | | | | | | | | | | | | |

2012 (35% tax rate) | | | | | | | | | | | | | | | | | | |

Income before temporary difference | $175,000 | $175,000 | | | | | | | | | | | | | | | | |

Temporary difference | $75,000 | $25,000 | | | | | | | | | | | | | | | | |

Income | | $250,000 | $200,000 | | | | | | | | | | | | | | | | |

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2013 (30% tax rate) | | | | | | | | | | | | | | | | | | |

Income before temporary difference | $200,000 | $200,000 | | | | | | | | | | | | | | | | |

Temporary difference | $ - | $25,000 | | | | | | | | | | | | | | | | |

Income | | $200,000 | $225,000 | | | | | | | | | | | | | | | | |

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2014 (30% tax rate) | | | | | | | | | | | | | | | | | | |

Income before temporary difference | $180,000 | $180,000 | | | | | | | | | | | | | | | | |

Temporary difference | $ - | $25,000 | | | | | | | | | | | | | | | | |

Income | | $180,000 | $205,000 | | | | | | | | | | | | | | | | |

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Required: | | |...