E19-18.

(Two Differences, No Beginning Deferred Taxes, Multiple Rates)

(LO 1, 2) Teri Hatcher Inc., in its first year of operations, has the following differences between the book basis and tax basis of its assets and liabilities at the end of 2016.

	Book Basis	Tax Basis
Equipment (net)	$400,000	$340,000
Estimated warranty liability	$200,000	$??-0-

It is estimated that the warranty liability will be settled in 2017. The difference in equipment (net) will result in taxable amounts of $20,000 in 2017, $30,000 in 2018, and $10,000 in 2019. The company has taxable income of $520,000 in 2016. As of the beginning of 2016, the enacted tax rate is 34% for 2016-2018, and 30% for 2019. Hatcher expects to report taxable income through 2019.

Instructions

(a)

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016.

(b)

Indicate how deferred income taxes will be reported on the balance sheet at the end of 2016.