Create a spreadsheet that will calculate a tax provision for a company for 2016 and 2017

.

ABC Inc. is in its first and second years of operations and has five differences between pretax accounting

income and taxable income each year, listed below.

ABC has pretax accounting income of $250,000 in 2016 and $430,000 in 2017. The effective tax rate

is 40% in 2016. Congress enacts a new tax law in 2017, which changes the tax rate for 2018 to 35%.

Temporary and permanent differences in 2016

1. Fixed assets purchased $300,000 historical cost, are depreciated straight-line over three years for

the financial statements and are depreciated straight-line over two years for tax purposes.

2. Warranty expenses of $500,000 are accrued for financial statement purposes, but the tax deduction

won't be available until the warranty expenses are paid, expected evenly over the next 2 years

($250,000 per year).

3. Municipal bond interest is received from investments in municipal bonds of $60,000 in 2016.

4. Subscription Revenue $130,000 is deferred on the financial statements as Unearned Revenue.

For tax purposes, the revenue must be reported as soon as the contract is signed. Subscriptions

will be completed evenly over the next two years.

5. Installment sale gains of $56,000 are reported in 2016 and 2017. For financial statements, all of

the gain is reported in 2016.

Temporary and permanent differences in 2017

1. Fixed assets puchased, $100,000 historical cost, are depreciated straight-line over three years for

the financial statements and are depreciated straight-line over two years for tax purposes.

2. Warranty expenses of $600,000 are accrued for financial statement purposes, but the tax

deduction won't be available until the warranty expenses are paid, expected evenly over the

next 2 years ($300,000 per year).

3. Municipal bond interest is received from investments in municipal bonds of $70,000 in 2017.

4. Subscription Revenue $180,000 is deferred on the financial statements as Unearned Revenue. For

tax purposes, the revenue must be reported as soon as the contract is signed. Subscriptions will be

completed evenly over the next two years.

5. Another business is acquired by ABC on January 1. Financial reporting goodwill of $350,000 is

recorded and $450,000 of tax goodwill is calculated. Tax goodwill is amortized over 15 years using

the straight-line method.

Calculate ABCs taxable income and income tax payable for 2016 and 2017.

Calculate the balance in ABCs deferred tax asset and liability accounts at the end of 2016 and 2017.

Prepare an effective tax rate reconciliation for 2016 and 2017.