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Pharoah Company began operations at the beginning of 2026. The following information pertains to...

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Accounting

Pharoah Company began operations at the beginning of 2026. The following information pertains
to this company.
1. Pretax financial income for 2026 is $91,000.
2. The tax rate enacted for 2026 and future years is 20%.
3. Differences between the 2026 income statement and tax return are listed below:
(a) Warranty expense accrued for financial reporting purposes amounts to $6,900.
Warranty deductions per the tax return amount to $1,900.
(b) Gross profit on construction contracts using the percentage-of-completion
method per books amounts to $86,200. Gross profit on construction contracts for
tax purposes amounts to $67,000.
(c) Depreciation of property, plant, and equipment for financial reporting purposes
amounts to $63,100. Depreciation of these assets amounts to $83,800 for the tax
return.
(d) A $3,100 fine paid for violation of pollution laws was deducted in computing
pretax financial income.
(e) Interest revenue recognized on an investment in tax-exempt municipal bonds
amounts to $1,300.
4. Taxable income is expected for the next few years. (Assume (a) is short-term in nature;
assume (b) and (c) are long-term in nature.)

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