Button Company has the following two temporary differences between its income tax expense and income taxes payable.
Pretax financial income
2014: $840,000
2015: $910,000
2016: $945,000
Excess Depreciation Expense
2014: ($30,000)
2015: ($40,000)
2016: ($10,000)
Excess Warranty Expense in Financial Income
2014: $20,000
2015: $10,000
2016: $8,000
Taxable Income
2014: $830,000
2015: $880,000
2016: $943,000
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 2014, 2015, and 2016.
B. Assuming there were no temporary differences prior to 2014, indicate how deferred taxes will be reported on the 2016 balance sheet. Button's warranty is for 12 months.
C. Prepare the income tax expense section of the income statement for 2016, beginning with the line, "Pretax financial Income."