For the year ended December 31, 2018, the Bowling Green Company reported income of $350,000 before provision for income tax. In arriving at taxable income for income tax purposes, the following differences were identified.The current tax rate is 40%.

Estimated warranty expense deducted for GAAP purposes

$18,000

Actual warranty costs deducted for tax purposes

10,000

Depreciation expense deducted for GAAP purposes

100,000

Depreciation expense deducted for tax purposes

150,000

Interest Income from municipal bonds (permanent difference)

30,000

a)schedule starting with GAAP income before taxes and ending with taxable income.Identify each timing (temporary difference) as well as the permanent difference.

GAAP Income before taxes$350,000

PERMANENT DIFFERENCES:

TEMPORARY DIFFERENCES:

Taxable Income$278,000

b)Does the estimated warranty costs being higher than the actual warranty costs cause a deferred tax asset or deferred tax liability?

c)Does the GAAP depreciation expense being lower than the tax depreciation expense cost a deferred tax asset or deferred tax liability?

d)Prepare the journal entry to record the Income tax expense and Income tax payable as well as any Deferred Tax Liability or Deferred Tax Asset.

2016

Debit

Credit