Problem 5. Radford Appliances computed a pretax financial loss of $110,000 for the first year of its operations ended December 31, 2017. Analysis of the tax and book basis of its liabilities disclosed $80,000 in accrued warranty expenses on the books that had not been deductible from taxable income in 2017, but would be deductible in future years when the warranty expenses were paid.

The future warranty payments are expected to occur in the following pattern:

2018 $14,000

2019 36,000

2020 18,000

2021 12,000

total $80,000

The enacted tax rates for this year and the next four years are as follows:

2017 35%

2018 20%

2019 20%

2020 20%

2021 20%

Instructions

(1) Prepare schedule showing the reversal of the temporary difference 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 expense for 2017.

(3) Prepare the income tax expense section of the income statement for Radford Appliances for 2017.