1. The following information is available for the first two years of operations for Bancroft, Inc.: Year Earnings before Tax 2020 $850,000 2021 900,000 a. On December 1, 2020, $90,000 was collected in advance for rental of a building for a six-month period December 1, 2020 May 31, 2021. The entire $90,000 was reported as taxable income in 2020. The company uses the accrual basis of accounting for financial statement purposes. b. In 2020 Bancroft, Inc. incurred a lawsuit which is probable and estimated at $60,000. It has been properly recorded as a litigation liability at 12/31/20 and will be paid in 2021. c. Bancroft, Inc. purchased computer equipment in 2020. Depreciation for financial reporting purposes amounts to $70,000 each year for 2020-2022. The company is able to deduct the full cost under the IRS Code Section 179 $210,000 amount allowed for tax purposes in 2020. d. In 2020 the gross profit on the books was $370,000. For tax purposes the company uses the installment method recording $130,000 in 2020 and will record $150,000 in 2021 and $90,000 in 2022. e. Product warranty expense accrued for financial reporting was $45,000 in 2020. Actual warranties paid and deducted on the tax returns was $10,000 in 2020. The remainder will be paid $15,000 in 2021 and $20,000 in 2022. f. Bancroft, Inc. has life insurance policies on the chief executives. The annual premiums paid are $40,000 per year and recorded as an expense each year as paid. g. Bancroft, Inc. earns interest on tax-exempt state bonds in the amounts of $25,000 each year in 2020, 2021 and 2022. The enacted tax rates existing at December 31, 2020 are 30% for 2020 and 34% for 2021 and thereafter. Instructions a. Complete the worksheet provided. It includes the following. i. Prepare a reconciliation of Book Income to Taxable Income for 2020. ii. Prepare a schedule of future taxable and (deductible) amounts at the end of 2020. iii. Prepare a schedule of the deferred tax (asset) and liability at the end of 2020. iv. Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2020. b. Show how the deferred income taxes should be reported on the Balance Sheet at December 31, 2020. c. Show how the taxes should be reported on the Income Statement at December 31, 2020. d. Repeat a. to g. above for 2021.