E18.2 (LO 1) (Two Differences, No Beginning Deferred Taxes, Tracked Through 2 Years) The following information is available for McKee plc for 2025.

1. Excess of tax depreciation over book depreciation, £40,000. This £40,000 difference will reverse equally over the years 2026–2029.

2. Deferral, for book purposes, of £25,000 of rent received in advance. The rent will be recorded as revenue in 2026.

3. Pretax financial income, £350,000. There are no deferred taxes at the beginning of 2025.
4. Tax rate for all years, 40%.
Instructions

a. Compute taxable income for 2025.

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

c. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2026, assuming taxable income of £325,000.