P19-7 (One Temporary Difference, Tracked 3 Years, Change in Rates, Income Statement Presentation) Gators Corp. sold an investment on an installment basis. The total gain of $60,000 was reported for financial reporting purposes in the period of sale. The company qualifies to use the installment sales method for tax purposes. The installment period is 3 years; one-third of the sale price is collected in the period of sale. The tax rate was 35% in 2006, and 30% in 2007 and 2008. The 30% tax rate was not enacted in law until 2007. The accounting and tax data for the 3 years is shown below. Financial Tax Accounting Return 2006 (35% tax rate) Income before temporary difference $ 70,000 $70,000 Temporary difference 60,000 20,000 Income $130,000 $90,000 2007 (30% tax rate) Income before temporary difference $ 70,000 $70,000 Temporary difference 0 20,000 Income $ 70,000 $90,000 2008 (30% tax rate) Income before temporary difference $ 70,000 $70,000 Temporary difference 0 20,000 Income $ 70,000 $90,000 Instructions (a) Prepare the journal entries to record the income tax expense, deferred income taxes, and the income tax payable at the end of each year. No deferred income taxes existed at the beginning of 2006. (b) Explain how the deferred taxes will appear on the balance sheet at the end of each year. (Assume the Installment Accounts Receivable is classified as a current asset.) (c) Draft the income tax expense section of the income statement for each year, beginning with Income before income taxes.