The differences between the book basis and tax basis of the assets and liabilities of Castle Corporation at the end of 2024 are presented below.

It is estimated that the litigation liability will be settled in 2025. The difference in accounts receivable will result in taxable amounts of $30,000 in 2025 and $20,000 in 2026. The company has taxable income of $350,000 in 2024 and is expected to have taxable income in each of the following 2 years. Its enacted tax rate is 34% for all years. This is the company’s first year of operations. The operating cycle of the business is 2 years.

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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Accounts receivable Litigation liability Book Basis $50,000 30,000 Tax Basis $-0- -0-