Landers Inc. began business in 2015. In preparing Landers financial statements and income tax return for 2015, you discovered the following:

Landers leased part of its office building to Krump on August 1 for an advance payment of $220,000. The lease covers 20 months.

Landers earned $25,000 of interest from its investment in Washington State bonds.

Landers paid Prudential Life Insurance a $30,000 premium in early January for a key-man life insurance policy.

Landers acquired capital assets for $324,000. For financial reporting, the assets have a 6-year useful life and $0 salvage. For income taxes, the capital assets are 5-year property and cost will be recovered using the mid-year convention.

Year Depreciation expense

Accounting Tax

2015 $54,000 $ 65,000

2016 54,000 104,000

2017 54,000 62,000

2018 54,000 37,000

2019 54,000 37,000

2020 54,000 19,000

Landers made installment sales of qualified property in 2015. The gain recognized on the financial statements and the income tax return are shown below:

Gain reported on income statement Gain realized on tax return

2015 $150,000 $38,000

2016 40,000

2017 40,000

2018 32,000

Additional information for 2015:

Income before income tax $825,000

Taxable income on line 28 872,000

Tax rate 35%

Estimated income tax paid each quarter 75,000

Select the best answer for each of the following questions and type the letter on the answer sheet in capital letters.

Questions A through E involve the reconciliation of accounting income before income taxes to taxable income (schedule M-1) for 2015. For each question, indicate the type of difference (temporary or permanent) and indicate whether the amount of the item is added or subtracted to determine taxable income for 2015.

A. The rent received from Krump:

Type of difference Treatment in the reconciliation

A. Permanent Added

B. Temporary Subtracted

C. Permanent Subtracted

D. Temporary Added

B. The excess of tax depreciation expense over book depreciation:

Type of difference Treatment in the reconciliation

A. Permanent Added

B. Temporary Subtracted

C. Permanent Subtracted

D. Temporary Added

C. The interest revenue on Washington State bonds:

Type of difference Treatment in the reconciliation

A. Permanent Added

B. Temporary Subtracted

C. Permanent Subtracted

D. Temporary Added

D. The insurance premium on the key-man life insurance policy:

Type of difference Treatment in the reconciliation

A. Permanent Added

B. Temporary Subtracted

C. Permanent Subtracted

D. Temporary Added

E. The gain related to the installment sales:

Type of difference Treatment in the reconciliation

A. Permanent Added

B. Temporary Subtracted

C. Permanent Subtracted

D. Temporary Added

F. For the year ended December 31, 2015, Landers current tax expense is

$305,200.

$288,750.

$302,500,

$288,570.

G. At December 31, 2015, Landers legal tax obligation is

$305,200.

$5,200.

$11,250.

$11,430.

H. At December 31, 2015, total future taxable amounts are

$137,000.

$123,000.

$148,000.

$112,000.

$153,000.

I. At December 31, 2015, total future deductible amounts are

$138,000.

$132,000.

$165,000.

$162,000.

$195,000.

J. Landers effective income tax rate for 2015 is

Higher than 35%.

Lower than 35%.

K. Which of the following statements is correct?

The net change in deferred taxes for 2015 is a debit.

The net change in deferred taxes for 2015 is a credit.