Recording and Reporting Multiple Temporary Differences

TNA Corporation reported the following year-end data related to income taxes. Unrealized gain on the companys investment portfolio, $37,500; recognized in net income for GAAP purposes at the end of the year. Amount will be considered for tax purposes when sold, estimated to be in two years. Fair value of the investment portfolio on December 31 is $300,000. Estimated litigation expense, $22,500; accrued for GAAP purposes at the end of the year. Amount will be considered for income tax purposes when paid, estimated to be at the end of next year. Taxable income (from the tax return) at the end of the year, $75,000; the enacted income tax rate is 25%. There were no deferred tax amounts at the beginning of the year.

Required

a. Prepare schedules to compute the deferred tax balances on December 31. Note: Do not use negative signs with your answers.

	Litiigation Accrual
GAAP basis	Answer
Tax basis	Answer
Difference between GAAP and tax bases	Answer
Tax rate	25%
Deferred tax asset, ending balance	Answer

	Investment
GAAP basis	Answer
Tax basis	Answer
Difference between GAAP and tax bases	Answer
Tax rate	25%
Deferred tax asset, ending balance	Answer

b. Prepare the journal entry to record income tax expense for the year. Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).

Date	Account Name	Dr.	Cr.
Dec. 31	Blank		Answer
	Blank		Answer
	Blank		Answer
	Blank		Answer
	Blank		Answer

c. Determine pretax GAAP income for the year. Pretax GAAP Income: $Answer

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

Partial Income Statement
For the year ended December 31
Income income taxes	Answer
Income tax expense	Answer
Net income	Answer

Financial Statement Disclosure
Current Tax Expense	Answer
Blank	Answer
Total Income Tax Expense	Answer

e. Determine the deferred income tax that would be recognized on the balance sheet on December 31.

Balance Sheet	Dec. 31, Year 1
Blank
Deferred Tax Liability	Answer