1. The following information is available for the first three years of operations for CP Company:

Year Taxable Income

2017 $500,000

2018 375,000

2019 400,000

2. The enacted tax rates are as follows:

2017 40%

2018-2020 35%

3. On January 2, 2017, heavy equipment was purchased. The equipment had a life of 5 years and no salvage value. The straight-line method of depreciation is used for book purposes and the tax depreciation taken each year is listed below:

2017 Equipment purchased $800,000

Tax Depreciation

2017 2018 2019 2020 Total

Depreciation $264,000 $360,000 $120,000 $56,000 $800,000

4. On January 2, 2017, $360,000 was collected in advance for rental of a building for a three-year period. The entire $360,000 was reported as taxable income in 2017, but $240,000 of the $360,000 was reported as unearned revenue at December 31, 2017 for book purposes.

5. On December 2017, CP accrued litigation liability for $70,000. The liability is expected to be paid in 2019.

6. In 2017, the company terminated a top executive and agreed to $90,000 of severance pay. The amount will be paid $30,000 per year for 20172019. The 2017 payment was made. The $90,000 was expensed in 2017. For tax purposes, the severance pay is deductible as it is paid.

7. The company pays $10,000 a year for life insurance on officers since 2015.

8. The company receives $5,000 interest on Municipal bonds from 2017-2020.

9. It is more likely than not that the company will not be able to use $8,000 of its Deferred Tax Asset.

a) (6 points) Prepare a schedule comparing depreciation for financial reporting and tax purposes.

b) (4 points) Prepare a schedule comparing rent for financial reporting and tax purposes.

c) (4 points) Prepare a schedule comparing litigation for financial reporting and tax purposes.

d) (9 points) Compute Taxable Income and Income Taxes payable for 2017:

e) (7 points) Compute the future taxable (deduction) amounts of temporary differences for 2017:

f) (4 points) Prepare the journal entry to record 2017 income tax expense, income taxes payable, and deferred taxes.

h) (8 points) Compute Taxable Income and Income Taxes payable for 2018:

g) (6 points) Compute the future taxable (deduction) amounts of temporary differences for 2018:

h) (6 points) Prepare the T-accounts for Deferred Tax Asset and Deferred Tax Liability for 2018.

i) (4 points) Prepare the journal entry to record 2018 income tax expense, income taxes payable, and deferred taxes.

j) (2 points) Prepare the journal entry to record the Deferred Income Tax Asset that will not be used.

k) (5 points) Prepare partial Income Statement for the year ended December 2018, in relating to Income before Income Taxes, Income Tax Expense, and Net Income.

m) (2 points) Prepare partial Balance Sheet as of December 2018 in relating to Income Taxes classified under Long-term Assets/Liabilities and Current Liabilities.