Grange Inc, Inc. began operations in 2004. In 2012, the company became a publicly-held company. Zeke Bratkowski, controller, is preparing the 2018 annual financial statements and has gathered the following information pertaining to the accounting for income taxes. For the years ended December 31, 2017 and 2018 Grange Inc, Inc reported the following revenues and expenses. (No tax information is contained in these figures.)

December 31, 2017December 31, 2018

Revenues$1,420,000$1,610,000

Cost of goods sold$438,000$581,000

Operating expenses$326,000$387,000

Other revenue$27,000$27,000

• Tax rates enacted as of the beginning of 2015 are 2015, 2016 & 2017, 40%; 2018, 20% and 2021 and beyond 35%.
• Grange Inc, Inc. uses the calendar year for both financial statement and income tax reporting.
• In 2017, one of the company's employees filed a sexual harassment suit. At the end of the year, the company attorneys stated that was probable that Grange would lose, and they believed that the judgement would be approximately $80,000. The lawyers expect the case to be settled in November of 2018. In October of 2018, the suit was settled for $71,000.
• Grange Inc, Inc. insures its key officers for death and accidents. The premium on this policy is $21,000 per year. The premium is expected to remain the same through 2019. During 2017, the company had received $90,000 check in settlement of a claim against the policy.
• During 2017, Grange Inc, Inc. sold 30 retractable wheel assembly units for $500 each to Limpalong Airlines, Inc. Jan Dean, the plant cost accountant, estimated warranty expense per unit at $75 based on historical data. For financial purposes, warranty expenses are recognized at the point of sale, and for tax purposes at the time paid. Jan estimates actual warrantee costs per year would be:

YearAmount

2017$240

2018$750

2019$1,260

• Grange Inc, Inc. collected $45,000 in rent on a building it owns. The rent is for a 5 year period beginning January 1, 2017.
• E. Clapton, production superintendent recently spoke with the plant manager concerning the status of some of the production equipment. He asked if a new system could be purchased. On January 8, 2017, Steve Miller, the plant manager, agreed with Clapton and purchased a new conveyor belt unit for $85,500 with no salvage value. Steve estimated the useful life to be 9 years. For financial purposes, the equipment was depreciated using the straight line method and for tax purposes, the machine was depreciated using the following MACRS table:

7-year equipment

14.29%

24.49%

17.49%

12.49%

8.93%

8.92%

8.93%

4.46%

Required

1. Identify each of the financial statement and income tax reporting differences listed above for Grange Inc, Inc as either temporary or permanent differences. Explain.

2. For the years ended December 31, 2017 & 2018, compute Grange's taxable income and income tax liability.

3. For the years ended December 31, 2017 & 2018, calculate the deferred tax that relates to the differences identified in requirement 1.

4. Prepare the journal entries required from the above information for Grange, Inc for the years ended.