At the end of 2016, its first year of operations, Beattie Company reported taxable income of $39,000 and pretax financial income of $34,200. The difference is due to the way the company handles its warranty costs. For tax purposes, Beattie deducts the warranty costs as they are paid. For financial reporting purposes, Beattie provides for a year-end estimated warranty liability based on future expected costs. Beattie is subject to a 30% tax rate for 2016, and no change in the tax rate has been enacted for future years. Based on verifiable evidence, the company decides it should establish a valuation allowance of 70% of its ending deferred tax asset.

Required:

1.	Prepare Beattie’s income tax journal entry at the end of 2016.
2.	Prepare the lower portion of Beattie’s 2016 income statement.

CHART OF ACCOUNTS

Beattie Company

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
152	Prepaid Insurance
160	Deferred Tax Asset
169	Allowance to Reduce Deferred Tax Asset to Realizable Value
181	Equipment
198	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Revenue
260	Deferred Tax Liabilities
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

Prepare Beattie’s income tax journal entries on December 31 to record the income tax expense for the year and to record the allowance to reduce deferred tax asset to realizable value. Additional Instructions

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GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5

Amount Descriptions
Income before income taxes
Net income
Net loss

Prepare the lower portion of Beattie’s 2016 income statement. Additional Instructions

BEATTIE COMPANY

Partial Income Statement

For the Year Ended December 31, 2016

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2
3