During 2021, the Valley Produce Company reports taxable income and pre-tax accounting

income of $800,000 and $550,000, respectively. The difference is attributable to temporary

differences of:

1) Estimated litigation expense of $200,000 that is accrued for financial reporting

purposes during 2021. Payment on the litigation is not expected until 2024.

2) Valley Produce collects advertising revenue of $50,000 from another company in

advance during 2021. The advertising will be earned during 2022 and 2023 (in equal

amounts).

The current tax rate is 30%. However, the (enacted) tax rate for 2023 and later is 40%. This is

the first year of operations for Valley Produce.

REQUIRED:

1. Calculate any deferred tax amounts and income tax payable, and prepare the journal entry

for 2021.

2. Alternatively assume that the current tax rate is 40%. Calculate income tax expense, any

deferred tax amounts, and income tax payable, and prepare the journal entry for 2021.