Lake Cottages Inc, builds lake houses. They have three temporary differences at the end of 2019. The first difference stems from the recognition of revenue. Customers the end of construction. For book purposes the company records revenue under the percentage- of-completion method but for tax purposes revenue only occurs when cash is received at the end of the construction. The second difference results from depreciation expense of their heavy construction equipment where the books use straight-line depreciation and taxes use accelerated depreciation. The third is due to litigation over the construction (and collapse) of one of their completed houses. For book purposes, the company recorded a litigation loss in 2019, which will be paid in 2020. For tax purposes, the litigation loss is deductible when cash is paid. Lake Cottages' accountants have developed the following table illustrating these future deductible and taxable amounts (tax-book differences). 2019 2020 Tax Book | Tax Book $100,000 $250,000 $300,000 $150,000 $200,000 $110,000 $120,000 $110,000 Construction Revenue Depreciation Expense Litigation Accrual (expense) Pretax Income $-0- $50,000 $50,000 S-0- $1,900,000 $2,100,000 20% 20% Enacted Tax rates: At the beginning of 2019, no deferred income taxes are on the company's balance sheet. Assume that no adjustment for a valuation allowance is required. Problem 2 Continued Required: (a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for both years. Accounts (2019) Debits Credits Accounts (2020) Debits Credits