Teri Hatcher Inc., in its first year of operations, has the following differences between the book basis and tax basis of its assets and liabilities at the end of 2013.
Equipment (net): Book basis = $414, 700 and Tax basis = $331,000
Estimated warranty liability: Book basis = $202,100 and Tax basis = $0
It is estimated that the warranty liability will be settled in 2014. The difference in equipment (net) will result in taxable amounts of $27,800 in 2014, $39,000 in 2015, and $16,900 in 2016. The company has taxable income of $541,400 in 2013. As of the beginning of 2013, the enacted tax rate is 34% for 2013–2015, and 32% for 2016. Hatcher expects to report taxable income through 2016.
a. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2013.
b. Indicate how deferred income taxes will be reported on the balance sheet at the end of 2013.