Reporting a Temporary Difference

For 2020, Trendy Inc. calculated taxable income of $12,000 after taking into account one temporary difference: prepaid insurance expense on a GAAP basis exceeds prepaid insurance on a tax basis by $2,000. The tax rate is 25% and there were no balances in deferred tax accounts at the beginning of 2020.

Required

a. Indicate the deferred income tax amount that would be recognized on the balance sheet on December 31, 2020.

AnswerDeferred tax asset, ending balanceDeferred tax liability, ending balance

Answer

b. Prepare the income tax section of the income statement for 2020 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, 2020
Income before income taxes	Answer
Income tax expense	Answer
Net income	Answer

Financial Statement Disclosure	2020
Current tax expense	Answer
Deferred tax expense	Answer
Total income tax expense	Answer