(One Temporary Difference, Future Taxable Amounts, One Rate, No Beginning Deferred Taxes)

South Carolina Corporation has one temporary difference at the end of 2007 that will reverse and cause taxable amounts of $55,000 in 2008, $60,000 in 2009, and $65,000 in 2010. South Carolina’s pretax financial income for 2007 is $300,000, and the tax rate is 30% for all years. There are no deferred taxes at the beginning of 2007.

Instructions

(a) Compute taxable income and income taxes payable for 2007.

(b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2007.

(c) Prepare the income tax expense section of the income statement for 2007, beginning with the line

“Income before income taxes.”