Harms Way Company (HWC) provides you with the following information for the year ended December 31, 2021. Your assignment is to calculate income tax expense, income taxes payable, and deferred income tax assets/liabilities. The end result will be a journal entry to record all of that. In addition, you must calculate HWCs effective tax rate and prepare a reconciliation to the federal statutory rate of 21%.

1. Income before tax, as shown on HWCs GAAP statement of income = $3,740,000

2. Depreciation calculated under GAAP = $300,000. Depreciation as will be shown on the tax return = $575,000.

3. Interest income on municipal bonds, which is not subject to federal income tax = $550,000.

4. At the end of the fiscal year (on December 29, 2021), HWC received a payment of $2,750,000 from a client for a product to be delivered in July 2022. Under the tax law, that payment is taxable when received, not when the product is delivered.

5. Of the $3,740,000 in income before tax, $250,000 was earned in another country that has no income tax. HWC expects that the $250,000 in income will not be subject to US federal income tax at any time in the future (you think to yourself, That sounds permanent.).

Required: Calculate

1. Income tax expense (GAAP).
2. Income taxes currently payable.
3. Deferred income taxes resulting from this years operations.
4. HWCs effective tax rate. In a brief write-up (two or three sentences at most) explain to the company president why the tax rate is different from the federal statutory rate of 21%. Remember that we are ignoring all other forms of income tax, just federal.