Reference no: EM132690316

Question - The following information has been obtained for Pearl Corporation.

1. Prior to 2017, taxable income and pretax financial income were identical.

2. Pretax financial income is $1,747,000 in 2017 and $1,434,000 in 2018.

3. On January 1, 2017, equipment costing $1,304,000 is purchased. It is to be depreciated on a straight-line basis over 5 years for tax purposes and over 8 years for financial reporting purposes. (Hint: Use the half-year convention for tax purposes, as discussed in Appendix 11A.)

4. Interest of $54,000 was earned on tax-exempt municipal obligations in 2018.

5. Included in 2018 pretax financial income is a gain on discontinued operations of $195,000, which is fully taxable.

6. The tax rate is 35% for all periods.

7. Taxable income is expected in all future years.

Required -

PART A - Compute taxable income and income taxes payable for 2018.

PART B - Complete the journal entry to record 2018 income tax expense, income taxes payable, and deferred taxes.

PART C - Prepare the bottom portion of Pearl's 2018 income statement, beginning with "Income from continuing operations before income taxes.

PART D - Indicate how deferred income taxes should be presented on the December 31, 2018, balance sheet.