Temporary Differences, Deferred Tax Liabilities. Meyer- Swift Construction Equipment ­Manufacturers engaged in an installment sale with one of its major customers. The firm ­negotiated the terms of the installment sale for a specialized piece of equipment; full payment is required within three years. We present information related to Meyer- Swift€™s first three years of operation:
Required
a. Prepare the journal entries required to record the tax expense for all three years.
b. Determine the net income reported on the income statement for the three years.

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Year 1 Year 2 Year 3 GAAP Tax GAAP Tax GAAP Tax Account Sales Gross Profit on Installment Sales 3.200 Taxable portion of cash collected $5,000 $5,000 $6,200 S6,200 $7800 $ 7800 1,500 1500 (500 (620 (620) $7080 700 1.000 on installment sales Operating Expenses Income before Tax Taxable Income Tax Rate Tax Payable 780) (780) $7,700 $5,580 $7020 $6,200 %8,020 x 35% × 35% x 35% S2.478 $2,807 $1.820