Book/Tax Differences Temporary Permanent Difference Reason Book 4,800 1,000 20 5,820 Sales Installment sales Interest Income Required: Determine which book/tax differences are temp or perm Calculate and enter Federal income tax expense Prepare journal entry to record tax expense Calculate Effective Tax Rate Prepare Deferred Tax Reconcilation for Financial stmt footnote Tax 4,800 300 5 5 5,105 (700) (15) (700) Payments not received municipal bond interest 2,350 2,350 Assumptions: DTA and DTL beginning balances = 0 All DTAs and DTLs are reasonably expected to be realized Disregard state & local tax effects on effective tax rate 50 20 30 estimate 70 70 95 140 (45) MACRS N/D penalties 55 55 55 180 180 COGS Bad Debt Expense Advertising Depreciation Fines & Penalties Legal & Accounting Fees Life Insurance premiums Entertainment Wages & Benefits Taxes (sales, payroll, property) State & Local Income Tax Warranty Expense 10 10 60 N/D premiums N/D entertainment 60 825 120 40 50 3,905 825 120 40 25 3,770 Deduct when expensed Pre-Tax Net Income 1,915 1,335 Federal Income tax expense NOL carry forward from PY NET INCOME 75 PY NOL carryforward 1,915 1,260 Income Tax Journal Entry 21% Federal Tax Rate Federal Income Tax Liability Total temporary differences Deferred tax expense Total Federal Tax provision (690) Effective Tax Rate Disclosure of Deferred Tax Assets & Liabilities Current Year End Add lines as needed Identify differences by BALANCE SHEET accounts Assume all prior year ending balances = 0 Deferred Tax Assets: Total deferred tax assets Deferred Tax Liabilities: Total Deferred Tax Liabilities Net Deferred Tax Asset(Liability)