Part 1: Temporary Differences

Sharp Company has two temporary differences between its income tax expense and income taxes payable. The information is shown below.

	2018	2019	2020
Pretax financial income	$462,000	$500,500	$519,750
Excess depreciation expense on tax return	(16,500)	(22,000)	(5,500)
Excess warranty expense in financial income	11,000	5,500	4,400
Taxable income	$456,000	$484,000	$518,650

The income tax rate for all years is 40%.

• Explain your reasoning. Use the blank area in the template following the journal entries to make your notes.
• Prepare the income tax expense section of the income statement for 2018, beginning with the line "Pretax financial income."