(Three Differences, Multiple Rates, Future Taxable Income) During 2007, 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 2007 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, 2007, are summarized on the following page.

Instructions

(a) Complete the schedule below to compute deferred taxes at December 31, 2007.

(b) Compute taxable income for 2007.

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

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Future taxable (deductible) 2008 2009 Future Years 2010 2011 2012 Total amounts: Installment sales $32,000 Depreciation 6,000 Unearned rent (50,000) $32,000 6,000 (50,000) $32,000 $ 96,000 6,000 $6,000 $6,000 30,000 (100,000)