Recording and Reporting Multiple Temporary Differences

Cross Corporation provided the following reconciliation between taxable income and pretax GAAP income. Depreciation adjustment results from a difference between the GAAP basis and tax basis of depreciable equipment. Bad debt expense adjustment results from a difference between the GAAP basis and tax basis of net accounts receivable. Deferred tax accounts have a zero balance at the start of Year 1. Tax rate is 25%.

Please complete the following and show your work:

a. .Prepare the income tax section of the income statement for Year 1 and provide the disclosure of current and deferred tax expense. Note: Do not use negative signs with your answers.

b. Indicate the deferred income tax that would be recognized on the balance sheet at December 31 of Year 1

\begin{tabular}{|l|r|r|r|r|} \hline & Year 1 & Year 2 & Year 3 & Year 4 \\ \hline Taxable income & $59,500 & $79,500 & $84,400 & $74,600 \\ \hline Interest revenue on tax-exempt municipal bonds & 500 & 500 & 600 & 400 \\ \hline Depreciation expense & 15,000 & (5,000) & (5,000) & (5,000) \\ \hline Bad debt expense & (20,000) & (10,000) & (18,000) & 25,000 \\ \hline Pretax GAAP income & $55,000 & $65,000 & $62,000 & $95,000 \\ \hline \hline \end{tabular} Partial Income Statement For the year ended December 31, Year 1 \begin{tabular}{|l|ll|} \hline Financial Statement Disclosure & \multicolumn{2}{|c|}{ Year 1} \\ \hline Current tax expense & $ & 0 \\ \hline Total income tax expense & $ & 0 \\ \hline \end{tabular}