CASE 3: ERROR CORRECTION

1. The Flynn Company reported the following results for its first year of operations ending December 31, 2022:

Book income before taxes (pretax income) $350,000 Taxable income (taxable income) 560,000

The difference between the countable income and the taxable income was due to a temporary difference that will be canceled in 2024. The legislated tax rate for 2022 and 2024 is 40% and 35%, respectively.

On December 31, 2022, the company computed the deferred account using the tax rate of the current year (40%).

a. Prepare the journal entry to correct this error assuming it is discovered in 2022 after adjustments, but before closing books.

b. Prepare the journal entry to correct this error assuming it is discovered in 2023 before posting the 2022 10K.