Multiple Temporary Differences

First Capital Company had the following temporary differences on their financial statements and

tax return during 2021:

Warranty expense accrued of $40,000 during the year, but not expected to be

paid in actual warranty claims until 2022 and 2023 (in equal amounts).

Prepaid subscriptions of $200,000 during the year that will be recognized as

expense by First Capital during 2022.

Gross profit on installment sales of $120,000 was recognized for financial

reporting purposes; however, the cash will be received in equal amounts during

2022-2024.

The tax rate is 40%. First Capital reported taxable income of $620,000 during 2021, its first year

of operations.

REQUIRED:

1. For each temporary difference, indicate if they give rise to a future deductible or

future taxable amount for First Capital. What is the amount of the related DTA and

DTL that First Capital will have to recognize?

2. Calculate pre-tax accounting income for 2021.

3. Provide all required journal entries for 2021.

4. Prepare a (partial) balance sheet for 2021