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%.

• Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2016, 2017, and 2018.
• Indicate how deferred taxes will be reported on the 2018 balance sheet, assuming there were no temporary differences prior to 2016. Sharp's product warranty is for 12 months.