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 2024.

It is estimated that the warranty liability will be settled in 2025. The difference in equipment (net) will result in taxable amounts of $20,000 in 2025, $30,000 in 2026, and $10,000 in 2027. The company has taxable income of $520,000 in 2024. As of the beginning of 2024, the enacted tax rate is 34% for 2024–2026, and 30% for 2027. Hatcher expects to report taxable income through 2027.

Instructions

a. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2024.

b. Indicate how deferred income taxes will be reported on the balance sheet at the end of 2024.

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Equipment (net) Estimated warranty liability Book Basis $400,000 200,000 Tax Basis $340,000 -0-