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.

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