The differences between the book basis and tax basis of the assets and liabilities of Morgan Corporation at the end of 2022 are presented below.

It is estimated that the litigation liability will be settled in 2023. The difference in accounts receivable will result in taxable amounts of $30,000 in 2023 and $20,000 in 2024. The company has taxable income of $300,000 in 2022 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.

Instructions

a. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2022.

b. Indicate how deferred income taxes will be reported on the statement of financial position at the end of 2022.

Transcribed Image Text:

Book Basis Tax Basis Accounts receivable $50,000 $-0- Litigation liability 20,000 -0-