30% income tax rate and assume that the tax bill is paid the following year, i.e., the tax for Y1 is paid in Y2 and the tax for Y2 is paid in Y3. You can assume that there are no book/tax differences. Accrue 30% of pretax income in taxes payable. This means that you cannot close the books until you first calculate pre tax income for the year. Multiple-step Income Statements Classified balance sheets as of December 31 Y1 Statements of cash flows for Y1 Date: October 1, Y1 We formed Corporation by issuing 100,000 shares of common stock for $8 per share. We took out a bank loan for $500,000. The loan is payable in 3 years and with an annual interest rate of 6%. The interest is paid each year on October 1. Already today we paid $180,000 to cover rent for the next 12 months, purchased furniture for $400,000, and hired four employees, each with a salary of $10,000 per month (paid at the end of the month). utility costs are $5,000 per month and each bill is paid the following month. We also paid $60,000 for a one-year insurance policy that will cover us through September 30, Y2. To get our business started we received $240,000 from clients for one-year service contracts. We expect to provide the services evenly over the year. Date: December 31, Y1 We billed clients for $300,000 for services provided over the past three months. We expect the clients to pay their bills in January, Y2. Accounting Policies: Furniture depreciation: Straight-line basis, using a five-year useful life and salvage value equal to 10% of the purchase cost. Revenues: company uses separate accounts for its client service and customer sales revenues, but consolidates all accounts receivable into one account for both clients and customers. Check figure: Cash balance at December 31, Y1 = $770,000