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

1.

Year ........... Amount Due per Tax Return
2022 ................ ¥130,000,000
2023 ................ 104,000,000

2. On January 1, 2022, 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 2023, ¥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 2023, but ¥150,000,000 of the ¥225,000,000 is reported as unearned revenue in 2023 for financial reporting purposes. The remaining amount of unearned revenue is to be recognized equally in 2024 and 2025.

4. The tax rate is 40% in 2022 and all subsequent periods. To find taxable income in 2022 and 2023, the related income taxes payable amounts will have to be “grossed up.”

5. No temporary differences existed at the end of 2021. 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 2022, and indicate how it should be classified on the statement of financial position.

b. Prepare the journal entry to record income taxes for 2022.

c. Draft the income tax section of the income statement for 2022, beginning with “Income before income taxes.” 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 2023, and indicate how they should be classified on the statement of financial position.

e. Prepare the journal entry to record income taxes for 2023.

f. Draft the income tax section of the income statement for 2023, beginning with “Income before income taxes.”