Question 1 (Deferred tax liability): Olympus Motors, Inc., computed a pretax financial income of $80,000 for its first year of operations ended December 31, 20X5. In preparing the income tax return for the year, the tax accountant determined the following differences between 20X5 financial income and taxable income.

Required: Prepare journal entries to recorded income taxes payable and deferred income taxes for 20X5.

Nondeductible expenses Nontaxable revenues Temporary difference- installment sales reported in financial income but not in taxable income $15,000 25,500 32,000 The temporary difference is expected to reverse in the following pattern as the cash is collected: 20X6 $7,000 20x7 15,500 20X8 9,500 Total $32,000 The enacted tax rates for this year and the next three years are as follows: 20X5 40% 20X6 35% 33% 20X7 20X8 30%