The following information was disclosed during the audit of Zheng Inc.

1.

2. On January 1, 2014, equipment costing ¥600,000,000 is purchased. For financial reporting purposes, the company uses straight-line depreciation over a 5-year life. For tax purposes, the company uses the double-declining balance method over 5 years.
3. In January 2015, ¥225,000,000 is collected in advance rental of a building for a 3-year period. The entire ¥225,000,000 is reported as taxable income in 2015, but ¥150,000,000 of the ¥225,000,000 is reported as unearned revenue in 2015 for financial reporting purposes. The remaining amount of unearned revenue is to be recognized equally in 2016 and 2017.
4. The tax rate is 40% in 2014 and all subsequent periods.
5. No temporary differences existed at the end of 2013. Zheng expects to report taxable income in each of the next 5 years.

Instructions

(a) Determine the amount to report for deferred income taxes at the end of 2014, and indicate how it should be classified on the statement of financial position.

(b) Prepare the journal entry to record income taxes for 2014.

(c) Draft the income tax section of the income statement for 2014, beginning with “Income before income taxes.” (Hint: You must compute taxable income and then combine that with changes in cumulative temporary differences to arrive at pretax financial income.)

(d) Determine the deferred income taxes at the end of 2015, and indicate how they should be classified on the statement of financial position.

(e) Prepare the journal entry to record income taxes for 2015.

(f) Draft the income tax section of the income statement for 2015, beginning with “Income before income taxes.”

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Amount Due Year per Tax Return 2014 2015 130,000,000 104,000,000