(Two Differences, No Beginning Deferred Taxes, Multiple Rates) Teri Hatcher Inc., in its first year of operations, has the following differences between the book basis and tax basis of its assets and liabilities at the end of 2006.

0OIt is estimated that the warranty liability will be settled in 2007. The difference in equipment (net) will result in taxable amounts of $20,000 in 2007, $30,000 in 2008, and $10,000 in 2009. The company has taxable income of $520,000 in 2006. As of the beginning of 2006, the enacted tax rate is 34% for 2006-2008, and 30% for 2009. Hatcher expects to report taxable income through 2009.
Instructions

(a) Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2006.

(b) Indicate how deferred income taxes will be reported on the balance sheet at the end of 2006.

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Book Basis Tax Basis Equipment (net) $400,000 $340,000 Estimated warranty liability $200,000 $ -0-