Wittco Company reports pretax accounting income in 1997, its first year of operations, of $100,000. Taxable income is $70,000, with temporary differences arising in 1997 from the following sources:
a. Prepayment of 1998 rent in the amount of $24,000 in 1997.
b. An installment sale in the amount of $36,000, with cash collections expected in two equal amounts in 1999 and 2000.
The enacted tax rates all known in 1997 are 30 percent in 1997, 30 percent in 1998, and 40 percent in 1999 and thereafter.
Required:
1. Prepare the journal entry to record income taxes.
2. Repeat (1) above, assuming that a new tax law is passed in 1997 raising the statutory tax rate to 40 percent for 1997 and all years thereafter.