Question 5 (Temporary Differences)

The following information is available for Beauty and the Beast for 2014.

Excess of tax depreciation over book depreciation, $40,000. This $40,000 difference will reverse equally over the years 2015-2018.

Deferral, for book purposes, of $25,000 of rent received in advance. The rent will be earned in 2013.

Pretax financial income = $350,000 and a tax rate for all years of 40%.

Compute taxable income for 2014.

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2014.

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2013, assuming taxable income of $325,000.