Deferred Tax Assets and Liabilities
Fibertek, Inc., computed a pretax financial income of $40,000 for the first year of its operations ended December 31, 2008. Included in financial income was $25,000 of nondeductible expenses, $22,000 gross profit on installment sales that was deferred for tax purposes until the installments were collected, and $18,000 in bad debt expense that had been accrued on the books in 2008. The temporary differences are expected to reverse in the following patterns:
|
Year |
Gross Profit on Collections |
Bad Debt Write Offs |
|
2009 |
$ 5,000 |
$ 6,000 |
|
2010 |
7,000 |
12,000 |
|
2011 |
4,000 |
|
|
2012 |
6,000 |
|
|
Totals |
$22,000 |
$18,000 |
The enacted tax rates for this year and the next four years are as follows:
|
2008 |
40% |
|
2009 |
35 |
|
2010 |
32 |
|
2011 |
30 |
|
2012 |
32 |
Prepare the journal entries necessary to record income taxes for 2008. Assume that there will be sufficient income in each future year to realize any deductible amounts. For classification purposes, the bad debt write offs are considered to be associated with a current asset, and the receivable for installment sales is classified as both current and noncurrent, depending on the expected timing of the receipt.