Darby Inc. Example of Accounting for Deferred Income Taxes Darby Inc. began operations on January 1, 2015. At December 31, 2015. Darby had the following income statement and balance sheet BEFORE any income tax effects were recorded Revenues (includes interest income of S10,000) $110,000 Expenses (includes depreciation of S10.000 80.000 30,000 Earnings before taxes Assets Various current assets Property, plant & equipment Less: Accumulated depreciation S 60,000 100,000 (10,000) Various current liabilities 35,000 Warranty liability Common stock Retained earnings Total Liabilities & SE 5,000 80,000 30.00 Total Assets $150,000 $150,000 Important other information 1. S10.000 of interest income on tax-exempt bonds is included in revenue for financial 2. 3. 4. Expenses other than estimated warranty costs and depreciation total $65,000 Required reporting but is not taxable Expenses include S5,000 of estimated warranty expense that is not tax deductible until the actual warranty costs are incurred in the future Depreciation for tax purposes will be S20,000. Depreciation for financial reporting is $10,000 Prepare Darby's tax return for 2015, including income that is taxable and items that are deductible. The tax rate is 40%. (No specific formatting is required.) 1. 2. Prepare a journal entry to record income taxes in the financial accounting records for 2015. Hint: What are the permanent differences and what are the temporary (timing) differences and related effects on deferred tax assets and/or liabilities?]