E18.19 (LO 1, 2, 4) (Two Temporary Differences, Multiple Rates, Future Taxable Income)

Flynn Inc. has two temporary differences at the end of 2025. The first difference stems from installment sales, and the second one results from the accrual of a loss contingency. Flynn’s accounting department has developed a schedule of future taxable and deductible amounts related to these temporary differences as follows.

2026 2027 2028 2029 Taxable amounts $40,000 $50,000 $60,000 $90,000 Deductible amounts (15,000) (19,000)

$40,000 $35,000 $41,000 $90,000 As of the beginning of 2025, the enacted tax rate is 34% for 2025 and 2026, and 38% for 2027–2030. At the beginning of 2025, the company had no deferred income taxes on its statement of financial position.

Taxable income for 2025 is $400,000. Taxable income is expected in all future years.

Instructions

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

b. Indicate how deferred income taxes would be classified on the statement of financial position at the end of 2025.