Gallo Light began operations in 2011. The company sometimes sells used warehouses on an installment basis. In those cases, Gallo Light reports income in its income statement in the year of the sale. In its income tax return, though, Gallo Light reports installment income by the installment method. Installment income in 2011 was $150,000, which Gallo Light expects to collect equally over the next three years. A $60,000 loss contingency was accrued in 2011, to be paid in 2013. The tax rate is 35%, but based on an enacted law, is scheduled to become 30% in 2013.
Gallo Light's pretax accounting income from the 2011 income statement was $830,000, which includes $40,000 of interest revenue from an investment in municipal bonds. There were no differences between accounting income and taxable income other than those described above.
Required:
(1.) Prepare the appropriate journal entry to record Gallo Light's 2011 income taxes. Show calculations.
(2.) What is Gallo Light's 2011 net income?
(3) How should the deferred tax amounts be classified in a classified balance sheet?