Texts: Please answer a, b, and c and explain… thanks!
PI9.7B (Lo 1, 2, 4) Groupwork (One Temporary Difference, Tracked 3 Years, Change in Rates, Income Statement Presentation) Treanor Corp. sold excess land on an installment basis. The total gain of $210,000 was reported for financial reporting purposes in the period of sale. The company qualifies to use the installment-sales method for tax purposes. The installment period is 3 years; one-third of the sale price is collected in the period of sale. The tax rate was 40% in 2020, and 20% in 2021 and 2022. The 20% tax rate was not enacted in law until 2021. The accounting and tax data for the 3 years are shown below.
Financial Accounting
Tax Return
2020 (40% tax rate)
Income before temporary difference: $120,000
Temporary difference: $210,000
Income: $330,000
Income before temporary difference: $120,000
Temporary difference: $70,000
Income: $190,000
2021 (20% tax rate)
Income before temporary difference: $120,000
Temporary difference: $0
Income: $120,000
Income before temporary difference: $120,000
Temporary difference: $70,000
Income: $190,000
2022 (20% tax rate)
Income before temporary difference: $120,000
Temporary difference: $0
Income: $120,000
Income before temporary difference: $120,000
Temporary difference: $70,000
Income: $190,000
Instructions:
(a) Prepare the journal entries to record the income tax expense, deferred income taxes, and the income taxes payable at the end of each year. No deferred income taxes existed at the beginning of 2020.
(b) Explain how the deferred taxes will appear on the balance sheet at the end of each year. (Assume Installment Accounts Receivable is classified as a current asset.)
(c) Draft the income tax expense section of the income statement for each year, beginning with "Income before income taxes."
