Book/Tax Differences Temporary Permanent Difference Reason Sales Installment sales Interest Income Book Tax 4,800 4,800 1,000 205 5,820 5.105 300 (700) (15) Payments not received municipal bond interest 2,350 2,350 estimate 140 MACRS ND penalties 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 ND premiums ND entertainment 60 120 40 40 Deduct when expensed 50 3,905 3.770 Pre-Tax Net Income 1,915 1,335 PY NOL carryforward (75) Federal Income tax expense NOL carry forward from PY NET INCOME 75 1.260 1.915 21% Federal Tax Rate Federal Income Tax Liability Total temporary differences Deferred tax expense Total Federal Tax provision Effective Tax Rate 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 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 Income Tax Journal Entry NAME: CLASS TIME: Disclosure of Deferred Tax Assets & Liabilities Add lines as needed Current Year End Identify differences by BALANCE SHEET accounts Deferred Tax Assets: Assume all prior year ending balances - 0 Tot Deferred Tax Liabilities: Total Deferred Tax Liabilities Net Deferred Tax Asset/(Liability)