(L01,2) (Three Differences, Multiple Rates, Future Taxable Income) During 2017, Kate Holmes Co.’s first year of operations, the company reports pretax financial income at $250,000. Holmes’s enacted tax rate is 45% for 2017 and 40% for all later years. Holmes expects to have taxable income in each of the next 5 years. The effects on future tax returns of temporary differences existing at December 31, 2017, are summarized as follows.

Future Years 2018 2019 2020 2021 2022 Total Future taxable (deductible)

amounts:

Installment sales $32,000 $32,000 $32,000 $ 96,000 Depreciation 6,000 6,000 6,000 $6,000 $6,000 30,000 Unearned rent (50,000) (50,000) (100,000)

Instructions

(a) Complete the schedule below to compute deferred taxes at December 31, 2017.

(b) Compute taxable income for 2017.

(c) Prepare the journal entry to record income taxes payable, deferred taxes, and income tax expense for 2017.

Future Taxable December 31, 2017

(Deductible) Tax Deferred Tax Temporary Difference Amounts Rate (Asset) Liability Installment sales $ 96,000 Depreciation 30,000 Unearned rent (100,000)

Totals $