Bradley Manufacturing uses long- term installment contracts to market its building products. Bradley uses the accrual basis for financial reporting and the cash basis for tax purposes. The company also sells several products without offering installment contracts. We present the results of operations for the last five years.

Required
a. Determine the balance of the deferred tax account at the end of each of the five years.
b. Prepare the journal entries to record the tax for the five years presented above. Show the effective tax rate for each year.
c. How should Bradley Manufacturing classify the deferred tax account on the balance sheet?

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Year 1 Year 2 Year 3 Year 4 Year 5 GAAP x GAAP x GAAP TGAAP Tax GAAP Tax $3.200 S3,200 $4,000 $4,0 S4,400 $4,400 $4,750 $4,750 5,00 $5,100 2,500 Account Sales Gross Profit on Installment Sales 3,100 0 1,500 0 1,550 0 2,000 Taxable Portion of Cash Collected on Installment Sales 0 2,325 2.100 2.100 0 1340 0 2,800 1,8001,900 0 2,585 2250 2250 1900 1,900 0 1,600 Operating Expenses 15001.5001800 Income before Tax $4,200 Taxable Income Tax Rate Tax Payable 800e2 $5,300 S5,200 $3.040 $5,000 $4,625 $4.100 $5,785 x 40% 40 % × 40% × 40% × 40% $1,216 $2,000 $1,850 S1,640 $2,314