Flounder Company began operations at the beginning of 2018. The following information pertains to this company.

1.		Pretax financial income for 2018 is $92,000.
2.		The tax rate enacted for 2018 and future years is 40%.
3.		Differences between the 2018 income statement and tax return are listed below:
		(a)		Warranty expense accrued for financial reporting purposes amounts to $6,600. Warranty deductions per the tax return amount to $1,800.
		(b)		Gross profit on construction contracts using the percentage-of-completion method per books amounts to $90,300. Gross profit on construction contracts for tax purposes amounts to $63,300.
		(c)		Depreciation of property, plant, and equipment for financial reporting purposes amounts to $54,500. Depreciation of these assets amounts to $77,000 for the tax return.
		(d)		A $3,500 fine paid for violation of pollution laws was deducted in computing pretax financial income.
		(e)		Interest revenue recognized on an investment in tax-exempt municipal bonds amounts to $1,400.
4.		Taxable income is expected for the next few years. (Assume (a) is short-term in nature; assume (b) and (c) are long-term in nature.)

(a) Your answer is correct. Compute taxable income for 2018. Taxable income for 2018 49400 SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINK TO TEXT LINK TO TEXT (b) Your answer is correct. Compute the deferred taxes at December 31, 2018, that relate to the temporary differences described above. The deferred tax liability 19800 The deferred tax asset 1920 (C) Your answer is correct. Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Account Titles and Explanation Debit Credit Income Tax Expense 37,640 Deferred Tax Asset 1,920 Deferred Tax Liability 19,800 Income Tax Payable 19,760 (d) Draft the income tax expense section of the income statement, beginning with "Income before income taxes." (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Flounder Corp. Income Statement (Partial) December 31, 2018 Income before Income Taxes Income Tax Expense Current Deferred Net Income / (Loss)