(Two Temporary Differences, One Rate, 3 Years) Gordon Company has two temporary differences between its pretax financial income and taxable income. The information is shown below.
|
2012 |
2013 |
2014 |
|
|
Pretax financial income |
$840,000 |
$910,000 |
$945,000 |
|
Excess depreciation expense on tax return |
(30,000) |
(40,000) |
(20,000) |
|
Excess warranty expense in financial income |
20,000 |
10,000 |
8,000 |
|
Taxable income |
$830,000 |
$880,000 |
$933,000 |
The income tax rate for all years is 40%.
Instructions
(a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2012, 2013, and 2014.
(b) Assuming there were no temporary differences prior to 2012, indicate how deferred taxes will be reported on the 2014 balance sheet. Gordon’s product warranty is for 12 months.
(c) Prepare the income tax expense section of the income statement for 2014, beginning with the line “Pretax financial income.”