California Dreaming, Inc. (Cal) reported pretax accounting income of $9 million for 2022 (calendar year). The following information relates to differences between pretax accounting income and taxable income: 1. Income from installment sales of properties included in pretax accounting income in 2022 was 5 million. For tax purposes installment sales were $4 million which represented cash collected during 2022. The installment receivable account at the beginning of the year and the end of the year 2022 had a balance of $1 million and $2 million, respectively (HINT: these are the beginning and ending amounts of the cumulative temporary difference). The year end 2022 receivable balance represents the uncollected portions of installment sales expected to be collected equally in 2023 and 2024.

2. Cal paid (and expensed) a penalty of $3 million to the Environmental Protection Agency for violation of a federal law in 2022.

3. Cal rents its operating facilities but owns one long-term depreciable asset acquired in 2022 at a cost of $80 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions). (HINT: this GAAP/TAX difference has a beginning balance for the cumulative amount 2021 ending balance is the 2022 beginning balance)

GAAP Income St. Tax Return Difference 2021 $20 $26 $(6) 2022. 20 35 (15) 2023 20 12 8 2024 20 7 13

4. Warranty expense of $4 million is reported in 2022. For tax purposes, the expense is deducted when costs are incurred/paid, $3 million in 2022. At December 31, 2022, the warranty liability was $2 million (after adjusting entries). The balance was $1 million at the end of 2021. 5. In 2022, Cal accrued an expense and related liability for estimated paid future absences of $8 million relating to the companys new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($4 million in 2023; $4 million in 2024). 6. During 2021, accounting income included an estimated loss of $2 million from having accrued a loss contingency (HINT: The 2021-year end ledger balances included a Loss Liability account/balance of $2 million). The loss was paid in 2022, at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2022, were $1.2 million and $2.8 million, respectively. The enacted tax rate for 2022 is 40%. Congress and the President have enacted into law during 2022 new tax rates of 30% for years 2023 and thereafter.

Model D:

GAAP	Tax
Revenues	$250,000	$190,000
Expenses	$150,000	$150,000
Pretax Financial Income/Taxable Income	$100,000	$40,000

1) Using the "tax model" from model D associated with Appendix A and B, complete an analysis and income tax provision journal entry for 2022. 2) Quantify and describe the presentation of the Deferred Tax Liabilities/Assets and I/T Payable accounts on the 12/31/22 Balance Sheet 3) Prepare the lower portion of the Income Statement for the year ended 12/31/22 starting with "Income before Income Taxes" and ending with Net Income 4) Lastly, using the tax model created in step 1 above, change pretax financial income to $4.250 million. Submit your new journal entry for this amended income tax provision.