The accounting income of Stephani Corporation and its taxable income for the years 2011 to 2014 are as follows:

The change in the tax rate from 35% to 40% was not enacted until early in 2012.
Accounting income for each year includes an expense of $40,000 that will never be deductible for tax purposes. The remainder of the difference between accounting income and taxable income in each period is due to one reversing difference for the depreciation of property, plant, and equipment. No future income taxes existed at the beginning of 2011.
Instructions
(a) Calculate the current and future tax expense or benefit for each of the four years. Also calculate the balance of the future income tax balance sheet account at the end of each fiscal year from 2011 to 2014.
(b) Prepare journal entries to record income taxes in all four years.
(c) Prepare the bottom of the income statement for 2012, beginning with the line €œIncome before income taxes.€

Transcribed Image Text:

Year 2011 2012 2013 2014 Accounting Income $460,000 420,000 390,000 460,000 Taxable Income $299,000 294,000 304,200 644,000 Tax Rate 35% 40% 40% 40%