Grange, Inc., Inc. began operations in 2004. In 2012, the company became a publicly-held. Zeke Bratkowski, controller,

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Grange, Inc., Inc. began operations in 2004. In 2012, the company became a publicly-held. Zeke Bratkowski, controller, is preparing the 2018 annual financial statements and has gathered the following information pertaining to the accounting for income taxes. For the year ended December 31, 2018, Grange, Inc., Inc. reported the following revenues and expenses. (No tax information is contained in these figures.)

Dec 31, 2018 Dec. 31, 2019

Revenues $1,420,000 $1,610,000

Cost of goods sold 438,000 581,000

Operating expenses 326,000 387,000

Other revenue 27,000 27,000

Tax rates enacted as of the beginning of 2016 are: 2016, 2017 & 2018, 40%; 2019, 39%; 2019,38% and 2020 & beyond 35%.

Grange, Inc., Inc. uses the calendar year for both financial statement and income tax reporting.
In 2018, one of the company’s employees filed a sexual harassment suit. At the end of the year, the company attorneys stated that was probable that Grange, Inc. would lose, and they believed that the judgement would be approximately $80,000. The lawyers expect the case to be settled in November of 2020. In October of 2019, the suit was settled for $71,000.
Grange, Inc., Inc. insures its key officers for death and accidents. The premium on this policy is $21,000 per year. The premium is expected to remain the same through 2020. During 2017, the company had received $90,000 check in settlement of a claim against the policy.

Grange, Inc. collected $45,000 in rent on a building it owns. The rent is for a 5 year period beginning January 1, 2018.

E. Clapton, production superintendent recently spoke with the plant manager concerning the status of some of the production equipment. He asked if a new system could be purchased. On January 8, 2017, Steve Miller, the plant manager, agreed with Clapton and purchased a new conveyor belt unit for $85,500 with no salvage value. Steve estimated the useful life to be 9 years. For financial purposes, the equipment was depreciated using the straight-line method and for tax purposes, the machine was depreciated using the following MACRS table:

7-year equipment

14.29%

24.49%

17.49%

12.49%

8.93%

8.92%

8.93%

4.46%

REQUIRED:

Identify each of the financial statement and income tax reporting differences listed above for Grange, Inc., Inc. as either temporary or permanent differences. Explain your answer.
For the years ended December 31, 2018 & 2019, compute Grange, Inc., Inc. taxable income and income tax liability.
For the years ended December 31, 2018 & 2019, calculate the deferred tax that relates to the differences identified in Requirement A.
Prepare the journal entries required from the above information for Grange, Inc., Inc. for the years ended December 31, 2018 & 2109.