Variable costing income statement and conversion to absorption costing income (two consecutive years) LO P2, P3

[The following information applies to the questions displayed below.]

Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.

2016 2017
Sales ($46 per unit) $ 1,104,000 $ 2,024,000
Cost of goods sold ($31 per unit) 744,000 1,364,000
Gross margin 360,000 660,000
Selling and administrative expenses 287,000 322,000
Net income $ 73,000 $ 338,000

Additional Information

Sales and production data for these first two years follow.
2016 2017
Units produced 34,000 34,000
Units sold 24,000 44,000
Variable cost per unit and total fixed costs are unchanged during 2016 and 2017. The company's $31 per unit product cost consists of the following.
Direct materials $ 6
Direct labor 8
Variable overhead 7
Fixed overhead ($340,000/34,000 units) 10
Total product cost per unit $ 31
Selling and administrative expenses consist of the following.
2016 2017
Variable selling and administrative expenses ($1.75 per unit) $ 42,000 $ 77,000
Fixed selling and administrative expenses 245,000 245,000
Total selling and administrative expenses $ 287,000 $ 322,000
DOWELL Company
Variable Costing Income Statements
2016 2017
Net income (loss)

Bridgeport company began operations at the beginning of 2018. the following information pertains to this company. 1. pretax financial income for 2018 is $115,000. 2. the tax rate enacted for 2018 and future years is 40%. 3. differences between the 2018 income statement and tax return are listed below: (a) warranty expense accrued for financial reporting purposes amounts to $7,500. warranty deductions per the tax return amount to $2,200. (b) gross profit on construction contracts using the percentage-of-completion method per books amounts to $94,700. gross profit on construction contracts for tax purposes amounts to $67,100. (c) depreciation of property, plant, and equipment for financial reporting purposes amounts to $61,800. depreciation of these assets amounts to $75,700 for the tax return. (d) a $3,600 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 $1,500. 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.) (a) prepare the reconciliation schedule for 2017 and future years. (b) prepare the journal entry to record income tax expense for 2017. (c) prepare the income tax expense section of the income statement beginning with “income before income taxes.” (d) determine how the deferred taxes will appear on the balance sheet at the end of 2017.