Problem 3. Walsh Services computed pretax financial income of $220,000 for 2017 and $288,000 for 2018. In preparing the income tax return for the year, the tax accountant determined the following differences between fi nancial income and taxable income for 2017 and 2018: 2017 2018 (1) Nondeductible expenses $40,000 30,000 (2) Nontaxable revenues 14,000 22,000 (3) Unearned rent of next two years received 20,000 (4) Installment sales in financial income but not in taxable income 70,000 The temporary Installment sales difference is expected to reverse in the following pattern: 2018 $14,000 2019 32,000 2020 24.000 $70,000 (5) Walsh purchase a new machine in 2018 for $150,000 and depreciates $50,000 a year from 2018 to 2020. For tax reporting, the depreciation expense is as follows: 2018 $100,000 2019 35,000 2020 15,000 $150,000 The enacted tax rates for this year and the next three years are as follows: 2017 40% 2018 30% 2019 20% 2020 25% Instructions (1) Prepare a schedule showing the reversal of the temporary differences and the computation of income taxes payable and deferred tax assets or liabilities as of December 31, 2017. (2) Prepare journal entries to record income taxes payable and deferred income taxes for 2017. (3) Prepare the income statement for Walsh Services beginning with "Income from continuing operations before income taxes" for the year ended December 31, 2017. Indicate how the income tax items should be presented on the balance sheet. (4) Prepare journal entries to record income taxes payable and deferred income taxes for 2018. (5) Prepare the income statement for Walsh Services beginning with "Income from continuing operations before income taxes" for the year ended December 31, 2018. Indicate how the income tax items should be presented on the balance sheet.