Kalya Co. at the end of 2021, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:

Pretax financial income $ 520,000

Extra depreciation taken for tax purposes (1,200,000)

Estimated expenses deductible for taxes when paid 890,000

Taxable income $ 210,000

Use of the depreciable assets will result in taxable amounts of $400,000 in each of the next three years. The estimated litigation expenses of $890,000 will be deductible in 2024 when settlement is expected.

Instructions

(a) Prepare a schedule of future taxable and deductible amounts.

(b) Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2021, assuming a tax rate of 20% for all years.

(a)

2022 2023 2024 Total

Future taxable (deductible) amounts

Extra depreciation $400,000 $400,000 $400,000 $1,200,000

Litigation (890,000) (890,000)

(b)

Income Tax Expense ($42,000 + $240,000 $178,000) ...................... 104,000

Deferred Tax Asset ($890,000 20%) .................................................. 178,000

Deferred Tax Liability ($1,200,000 20%) ....................... 240,000

Income Taxes Payable ($210,000 20%) ........................ 42,000