The statements of profit and loss for Gardner Corporation for two years (summarized) were as follows: The

Question:

The statements of profit and loss for Gardner Corporation for two years (summarized) were as follows:

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The income tax rate is $38 \%$ in $20 \mathrm{X} 4$ and $40 \%$ in $20 \mathrm{X} 5$. The $20 \mathrm{X} 5$ tax rate was enacted in 20X5. For tax purposes, the following differences existed:

a. Expenses (given above) on the 20X4 and 20X5 statements of profit and loss include golf club dues of $\$ 20,000$ annually, which are not deductible for income tax purposes.

b. Revenues (given above) on the 20X5 statement of profit and loss include $\$ 20,000$ rent revenue, which was taxable in $20 \mathrm{X} 4$ but was unearned for accounting purposes until 20X5.

c. Expenses (given above) on the 20X4 statement of profit and loss include $\$ 16,000$ of estimated warranty costs, which are not deductible for income tax purposes until paid in $20 \times 6$.

Required:
1. Explain whether each difference is a permanent or temporary difference.
2. Calculate income tax payable for each year.
3. Calculate income tax expense for each of $20 \times 4$ and 20X5. Also calculate the balance in the deferred income tax account at the end of $20 \mathrm{X} 4$ and $20 \mathrm{X} 5$.

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