Book$-$Tax Difference Project o$$ ABC uses MACRS $($an accelerated depreciation system$)$ for tax purposes and straight$-$line depreciation for book purposes. It recorded $$10,000$ in depreciation expense each year for book purposes. For tax purposes, it recorded $$17,000,$ $$12,000,$ and $$9,000$ in Years $1,2,$ and $3,$ respectively. o$$ o$$ ABC uses the allowance method to recognize bad debt expense for book purposes and the direct write$-$off method for tax purposes. Under the allowance method, ABC recognized $$5,000,$ $$7,000,$ and $$6,500$ of bad debt expense in Years $1,2,$ and $3,$ respectively, for book purposes. It recognized $$0,$ $$4,600,$ and $$6,000$ of bad debt expense in Years $1,2,$ and $3,$ respectively, for tax purposes. o$$ o$$ ABC recorded a $$5,000$ contingent litigation liability in Year $2$ for book purposes. o$$ In each year, the firm received municipal interest of $$1,000.$ o$$ ABC operates only in one taxing jurisdiction, and its statutory tax rate is $35\%.$ The firm assesses that it will not need a valuation allowance for any deferred tax assets. Follows are the partial income statements and selected balance sheet accounts for both book and tax reporting purposes for each of the $3$ years. $$ Requirements: What is ABC$$ income tax provision for each of the $3$ years? Calculate the tax difference and prepare the journal entries required to record the income tax provision for the first $3$ years of operation. Instructions: $1.$ Compute the balance of ABC$$s deferred tax accounts $($Installment sales, PPE, AR$,$ and Contingent Liabilities$)$ by comparing the tax basis of the underlying assets and liabilities to the book carrying values for Years $1,2,$ and $3.$ Show your work and calculations. $2.$ Determine the change in the deferred tax assets and liabilities balances throughout years $1,2,$ and $3.$ Show the balance progression and final balance within a t$-$account. Label properly. $3.$ Prepare a schedule showing the conversion of GAAP income to taxable income for year $1.4.$ Prepare a schedule of the calculation of income taxes payable based on taxable income and the income tax expense based on book income, adjusted for permanent differences for years $1,2,$ and $3.5.$ Based upon your computations, provide the required journal entries to record income tax expense, income tax payable, and any deferred assets or liabilities for years $1,2,$ and $3.$

$1.$ Installment Sale Revenue Tax Adjustment Project $-$ template $2025-$ Excel

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tax income $*$ tax rate

Compute the income taxes payable and income tax payable.

$\backslash$begin$\{$tabular$\}\{|$c$|$c$|$c$|$c$|$c$|$c$|\}$

$\backslash$hline & Year $1$ & Year $2$ & Year $3$ & & $\backslash \backslash$

$\backslash$hline Income Tax Payable & & & & tax income $*$ & x rate $\backslash \backslash$

$\backslash$hline add deferred liabilites & & & & & $\backslash \backslash$

$\backslash$hline less deferred assets & & & & & $\backslash \backslash$

$\backslash$hline & & & & & $\backslash \backslash$

$\backslash$hline Income Tax Expense & $0$ & $0$ & $0$ & & $\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$

Income Tax Expense

$-$

E

F

G

H

I

K

L

M

N

$0$

P

$\backslash$begin$\{$tabular$\}\{|$l$|$l$|$l$|$l$|\}$

$\backslash$hline & Year $1$ & Year $2$ & Year $3\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$

Income Tax Payable

add deferred liabilites

less deferred assets