1.Farmer INc. began business on January 1, 2014. Its pretax financial income for the first 2 years was as follows:

2014- $240,000

2015- $560,000

The following items caused the only differences between pretax financial income and taxable income.

1. In 2004, the company collected $360,000 of rent; of this amount, $120,000 was earned in 2014; the other $240,000 will be earned equally over the 2015-2016 period. The full $360,000 was included in taxable income in 2014.

2. The company pays $10,000 a year for life insurance on officers.

3. In 2015, the company terminated a top executive and agreed to $90,000 of severance pay. The amount will be paid $30,000 per year for 2015-2017. The 2015 payment was made. The $90,000 was expensed in 2015. For tax purposes, the severance pay is deductible as it is paid.

The enacted tax rates existing at December 31, 2014 are:

2014 30%

2015 35%

2016 40%

2017 40%

Instructions

1. Determine Texable income for 2014 and 2015

2. Prepare the journal entry to record income taxes for 2014.

3.Prepare the journal entry to record income taxes for 2015.

4. Show how the deferred income taxes should be reported on the balance sheet at December 31, 2015

Please open the attach file

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