(Two Temporary Differences, One Rate, 3 Years) Button Company has two temporary differences between its income tax expense and income taxes payable. The information is shown on page 1004.

Instructions

(a) Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2007, 2008, and 2009.

(b) Assuming there were no temporary differences prior to 2007, indicate how deferred taxes will be reported on the 2009 balance sheet. Button’s product warranty is for 12 months.

(c) Prepare the income tax expense section of the income statement for 2009, beginning with the line “Pretax financial income.”

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Pretax financial income Excess depreciation expense on tax return Excess warranty expense in financial income Taxable income 2007 2008 2009 $840,000 $910,000 $945,000 (30,000) (40,000) (10,000) 20,000 10,000 8,000 $830,000 $880,000 $943,000