Classify the deferred taxes for balance sheet

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Reference no: EM131008249

Molnar Corporation reported the following results for Year 1, its first year in business:

Taxable income (all taxable at 34%) . . . . . . . . . . . . . . $300,000
Accounting income (income before taxes). . . . . . . . . . $400,000

The difference between taxable income and accounting income resulted from the following:

 

    Income Statement

Income Tax Return

Depreciation

   $100,000

  $150,000

Profit on installment sales

      135,000

      55,000

Product warranty expense

        30,000

         -0-

REQUIRED:

1. Reconcile income before taxes to taxable income.

2. Prepare the journal entry to record the taxes for Year 1 assuming the following turnaround on temporary differences and a 34% tax rate for years 2-3 and 40% for years 4-5:

Taxable/(Deductible)

Years
 

2

3

4

5

Depreciation

$15

$15

$20

 

Installment Sales Profit

  25

  25

  30

 

Product Warranty

 

 

 

$(30)

3. Classify the deferred taxes for balance sheet purposes assuming installment sale receivables are classified as a current asset and product warranty is a long-term liability.

Reference no: EM131008249

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