Part 1

The Smith Company has been in existence for several years. After a period of growth and equipment acquisitions, the companys operations have stabilized. Smith uses the percentage-of-completion method for revenue recognition for book purposes and the completed contract method for income tax purposes. The company also uses MACRS for income tax purposes and straight-line depreciation for book purposes. The companys pre-tax accounting income is $125,000. The companys income tax rate is 30%. You have identified the following differences in the reporting of items for book and income tax purposes:

1	Excess of straight-line depreciation over MACRS depreciation.	25,000
2	Expenditures capitalized for book purposes but expensed for tax purposes.	1,000
3	Fine paid for late payment of employee tax withholdings.	2,000
4	Interest earned and collected on City of Muncie sewer bonds.	1,500
5	Revenue recognized under percentage of completion method	15,000
6	Rent collected in advance from tenant	4,500
7	Life insurance premiums paid on key executives	3,000

Required: Using Excel, prepare a schedule to compute Smiths taxable income and income tax liability for the current year.

Part 2

Nott Co. at the end of 2020, its second year of operations. The company uses accelerated depreciation methods for income tax purposes and the straight-line method for financial reporting purposes. At the end of 2020, the remaining depreciation book/tax differences will result in $1,000,000 in taxable amounts over the next five years. In 2020, the company reporting for financial reporting purposes $860,000 of estimated expenses that will be tax deductible when paid in 2021. At the end of 2019, the company reported a deferred income tax liability of $200,000 and a deferred income tax asset of $130,000 related to the timing differences between reporting for book and tax purposes. The current enacted tax rate is 45% and no changes are expected in the future.

Required: Using Excel, prepare the journal entry to record Nott Co.s income tax expense, deferred taxes, and income taxes payable for 2020.

SUBMIT YOUR WORK AS AN EXCEL FILE