Chambliss Company Started Business on January 1, Year 7 Required:
A

Essay

Chambliss Company started business on January 1, Year 7.It recognizes revenue and expense at the time of sale for financial reporting and uses the installment method for income tax reporting.Under the installment method, the firm recognizes revenue when it receives cash, and matches expenses with revenues based on the average cost of goods sold to sales percentage for the year in which the firm made the sale.The income tax rate is 30%.Data for Year 7 and Year 8 as reported to shareholders, appear below:
$\begin{array}{lll}&\text { Year } 7& \text { Year } 8\\\text { Net sales on account } & \$ 2,400,000 & \$ 3,000,000 \\\text { Cash collections of Year } 7 \text { sales } & 1,620,000 & 480,000 \\\text { Cash collections of Year 8 sales } & - & 2,040,000 \\\text { Cost of merchandise sold } & 1,440,000 & 1,920,000 \\\text { All other (period) expenses } & 240,000 & 360,000\end{array}$ Required:
a. Compute the amount of net income after taxes for financial reporting for Year 7 and Year 8.
b. Compute the amount of taxable income for Year 7 and Year 8.