2023 was the first year of operations for Lincoln Corporation. In 2023, Lincoln reported pretax accounting income of $1,000,000, which included the following amounts:

1. Interest received on tax-exempt bonds $30,000 was reported on the 2023 income statement. However, this revenue is not included in taxable income.

2. Insurance expense of $4,000, representing one-fourth of a $16,000, four-year casualty and liability insurance policy that is deducted for tax purposes in its entirety in 2023

A piece of equipment costing $600,000 with a four-year useful life was acquired at the beginning of 2023. It is depreciated by the straight-line method for accounting purposes. However, MACRS is used on the tax return. The depreciation reported on the income statement and the tax return for the four- year period is shown below: Depreciation Year Income Statement Tax Return Difference 2023 $150,000 $198,000 $(48,000) 2024 150,000 264,000 (114,000) 2025 150,000 90,000 60,000 2026 150,000 48,000 102,000 $600,000 $600,000 $----0----

In 2023, estimated warranty expense of $9,000 will be deductible on the tax return when actually paid during 2024, 2025, and 2026. Estimated deductions are as follows: Warranty Year Income Statement Tax Return Difference 2023 $9,000 $-0- $9,000 2024 -0- 6,000 (6,000) 2025 -0- 2,000 (2,000) 2026 -0- 1,000 (1,000) $9,000 $9,000 $-0-

5. In 2023, property was sold on an installment basis for $60,000. Lincoln recognizes installment income for financial reporting purposes in the year of sale. For tax purposes, installment income is reported by the installment method when the cash is received. The scheduled collections are as follows: $25,000 in 2024, and $35,000 in 2025.The enacted tax rate for 2023 was 30%. Because of changes in the tax legislation, the enacted tax rates for 2024, 2025 and 2026 are as follows: 2024 25% 2025 25% 2026 25% INSTRUCTIONS: 1. Which of the differences described in 1 5 above are temporary, and which are permanent? Explain your answer. 2. Prepare a schedule which reconciles the difference between pretax accounting income and taxable income for 2023. In your schedule, identify each temporary difference as a future taxable amount or a future deductible amount, and indicate whether it will generate a Deferred Tax Asset (DTA) or a Deferred Tax Liability (DTL). 3. Prepare the appropriate journal entry for 2023 for tax expense, deferred tax assets, deferred tax liabilities and taxes payable. Show computations. 4. Indicate how the 2023 deferred tax amounts should be classified and reported on the 2023 balance