Problem 3. Permanent and temporary differences (25 points)

The following information is available for Potter Corporation for 2017.

1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $75,000. This difference will reverse in equal amounts of $25,000 over the years 20182020.

2. Interest received on municipal bonds was $24,000.

3. Rent collected in advance on January 1, 2017, totaled $45,000 for a 3-year period. Of this amount, $30,000 was reported as unearned at December 31, 2017, for book purposes.

4. Pretax financial income for 2017 is 969,000 and the tax rates are 30% for all years.

5. No deferred taxes existed at the beginning of 2017.

Instructions

(a) Compute taxable income for 2017.

(c) Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2017.

(d) Prepare the income tax expense section of the income statement for 2017, beginning with Income before income taxes.