E18.16 (LO 1, 2) (Three Differences, Multiple Rates, Future Taxable Income) During 2025, Graham plc’s first year of operations, the company reports pretax financial income of £250,000. Graham’s enacted tax rate is 40% for 2025 and 35% for all later years. Graham expects to have taxable income in each of the next 5 years. The effect on future tax returns of temporary differences existing at December 31, 2025, are summarized below.

Future Years 2026 2027 2028 2029 2030 Total Future taxable (deductible)

amounts:

Installment sales £32,000 £32,000 £32,000 £ 96,000 Depreciation 6,000 6,000 6,000 £6,000 £6,000 30,000 Unearned rent (50,000) (50,000) (100,000)

Instructions

a. Complete the schedule below to compute deferred taxes at December 31, 2025.

b. Compute taxable income for 2025.

c. Prepare the journal entry to record income taxes payable, deferred taxes, and income tax expense for 2025.

Future Taxable

(Deductible) Tax December 31, 2025 Deferred Tax Temporary Difference Amounts Rate (Asset) Liability Installment sales £ 96,000 Depreciation 30,000 Unearned rent (100,000)

Totals £