Reid Inc. began business on January 1, 2018. Its pretax financial income for the first 2 years was as follows:

2018 $540,000

2019 1,260,000

The following items caused the only differences between pretax financial income and taxable income.

1. In 2018, the company collected $810,000 of rent; of this amount, $270,000 was earned in 2018; the other $540,000 will be earned equally over the 20192020 period. The full $810,000 was included in taxable income in 2018.

2.The company pays $22,500 a year for life insurance on officers.

3.In 2019, the company terminated a top executive and agreed to $225,000 of severance pay. The amount will be paid $75,000 per year for 20192021. The 2019 payment was made. The $225,000 was expensed in 2019. For tax purposes, the severance pay is deductible as it is paid. The enacted tax rates existing at December 31, 2018 are:

2018 35% 2020 25% 2019 30% 2021 25%

Required: (a) Determine taxable income for 2018 and 2019.

(b) Determine the deferred income taxes at the end of 2018, and prepare the journal entry to record income taxes for 2018.

(c)Prepare a schedule of future taxable and (deductible) amounts at the end of 2019.

(d)Prepare a schedule of the deferred tax (asset) and liability at the end of 2019.

(e)Prepare the journal entry to record income taxes for 2019.