Problem - The following differences enter into the reconciliation of financial income and taxable income of Hatley Company for the year ended December 31, 2015, its first year of operations. The enacted income tax rate is 30% for all years.
Pretax accounting income $450,000
Excess tax depreciation (300,000)
Litigation accrual 45,000
Unearned rent revenue deferred on the books but appropriately recognized in taxable income 25,000
Interest income from Ohio municipal bonds (10,000)
Taxable income $210,000
1. Excess tax depreciation will reverse equally over a four-year period, 2016-2019.
2. It is estimated that the litigation liability will be paid in 2019.
3. Rent revenue will be recognized during the last year of the lease, 2019.
4. Interest revenue from the Ohio bonds is expected to be $10,000 each year until their maturity at the end of 2019.
Instructions -
(a) Prepare a schedule of future taxable and (deductible) amounts.
(b) Prepare a schedule of the deferred tax (asset) and liability.
(c) Since this is the first year of operations, there is no beginning deferred tax asset or liability. Compute the net deferred tax expense (benefit).
(d) Prepare the journal entry to record income tax expense, deferred taxes, and the income taxes payable for 2015.
(e) The interest revenue for the Ohio municipal bonds is an example of what type of "difference" in accounting for income taxes?