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1. Prepare Journal Entry to record income tax expense, deferred taxes, and income taxes payable for 2018 2. Draft the income tax expense section of the Income Statement, beginning with Income before income taxes. . Write an analysis directed toward the team at Good Company describing what the numbers mean and how they relate to the business. Information: Good Company began operations in 2018 and has provided the following information: 1. Pretax financial income for 2018 is $200,000 2. The tax rate enacted for 2018 and future years is 40% 3. Differences between the 2018 income statement and tax return are listed below: a. Warranty expense accrued for financial reporting purpose amounts to S10,000. Warranty deductions per tax return amount to $4,000. b. Gross profit on construction contracts using the percentage of completion method for book purposes amounts to S184,000. Gross profit on construction contracts for tax purposes amounts to S124,000. c. Depreciation of property, plant, and equipment for financial reporting purposes amounts to S60,000. Depreciation of these assets amounts to S80,000 for the tax return. d. A S3,500 fine paid for violation of pollution laws was deducted in computing pretax financial incomes. e. Interest revenue earned on an investment in tax-exempt municipal bonds amounts to $1,400.

Date Transactions Debit 80,840 2,400 Credit Calculations ($51,240 $32,000) $2,400 $6,000 x 40% ($60,000 + $20,000) x 40% $128,100 x 40% 31-Dec-17 Income Tax Expense Deferred Tax Asset Deferred Tax Liability Income Tax Payable Record Income Tax Expense, Deferred Taxes, and Income Taxes Payable 32,000 51,240 $200,000 Pretax Financial Income Adjustment for Permanent Differences Fine for Pollution Tax-Exempt Income Adjustment for Originating Temporary Differences Excess Warranty Expense per Books 3,500 d) e) Excess Construction Profits per Books Excess Depreciation per Tax Taxable Income for 2017 (1,400) 6,000 (60,000) (20,000) $128,100 a) $10,000 $4,000 b) $184,000 $124,000 c) $80,000 $60,000 Income Statement Income before Income Tax Income Tax Expense Current Deferred 200,000 $51,240 $29,600 Income Tax Payable S32,000 $2,400 $(80,840) $51,240 $29,600 $119,160 Net Income

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