Project #1 1. The following information is available for the first two years of operations for Fonseca, Inc.: Year Taxable Income 2020 $850,000 2021 900,000 a. In 2020 the company has chosen to depreciate all of its fixed assets on an accelerated basis for tax purposes but on a straight-line basis for accounting purposes. The excess tax depreciation over book depreciation is 220,000 and will reverse equally over the next 2 years, 2021-2022. b. On July 1, 2020, $160,000 was collected in advance for rental of a building for a one-year period July 1, 2020 June 30, 2021. The entire $120,000 was reported as taxable income in 2020. The company uses the accrual basis of accounting for financial statement purposes. c. In 2021 Fonseca, Company recorded a $40,000 accrual for litigation liability which will be paid in 2022. d. The company sells its merchandise on an installment contract basis. In 2020, Fonseca, Inc. reported gross profit of $220,000 tax purposes, and $520,000 for financial statement purposes. This will result in taxable amounts of $150,000 in each of the next two years. e. Warranty expense accrued for financial reporting was $25,000 in 2020. Warranty deductions on the tax returns were $16,000 in 2020 and $9,000 in 2021. f. Fonseca, Inc. paid a $8,000 fine in 2020 for violating pollution laws. g. Interest recognized on tax-exempt municipal bonds amounts are fixed and will be $20,000 each year in 2020, 2021 and 2022. The enacted tax rates existing at December 31, 2020 are 34% for 2020 and 40% for 2021 and thereafter. Instructions a. Complete the worksheet provided. It includes the following. i. Prepare a reconciliation of Book Income to Taxable Income for 2020. ii. Prepare a schedule of future taxable and (deductible) amounts at the end of 2020. iii. Prepare a schedule of the deferred tax (asset) and liability at the end of 2020. iv. Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2020. b. Show how the deferred income taxes should be reported on the Balance Sheet at December 31, 2020. c. Show how the taxes should be reported on the Income Statement at December 31, 2020. d. Repeat a. to g. above for 2021.