Stanhope, Inc., a C corporation, is a distributor of personal electronics and has reported a net income for each year since inception. Its taxable income has consistently resulted in an effective tax rate of 33%. (Ignore state income taxes.)

You have been assigned to compute the company's deferred portion of federal income taxes for inclusion in its financial statements for Year 2 and to provide the company's controller with a schedule that supports your computation. Your schedule should identify deductible and taxable temporary differences and components of the deferred tax computations.

The controller has provided you with the following reconciliation of Stanhope's pretax accounting income to taxable income for Year 2 and the additional information shown below.

Stanhope, Inc. Reconciliation of Pretax Accounting Income to Taxable Income Year ended December 31, Year 2

Pretax accounting income		$678,000
Expenses recorded on books this year not deductible for tax purposes:
Meals and entertainment expenses	12,000
Credit loss expense provision	15,000	27,000
Subtotal		705,000
Income recorded on books this year not subject to tax:
Tax-exempt interest income	15,000
Unrealized gain (loss) on trading securities	8,000
Deductions on tax return not charged against book income this year:
Depreciation expense	63,000
Bad debts written off and charged against allowance account	5,000	(91,000)
Taxable income		$614,000

1. The allowance for credit losses (bad debts) as of December 31, Year 1, was $11,000. During Year 2, uncollectible accounts totaling $5,000 were written off and charged against the allowance account. A provision for credit losses of $15,000 was charged to operations at the end of the year to result in an allowance for credit losses balance at December 31, Year 2, of $21,000.
2. At the end of the year, the net unrealized gains on trading securities were $8,000. No unrealized gains/losses on trading securities existed at the beginning of the year.
3. The company uses straight-line depreciation for financial reporting (GAAP) purposes and accelerated methods for income tax purposes. Balances and activity in the accumulated depreciation account for GAAP and income tax purposes are summarized below:

   	GAAP	Tax	Difference
   Accumulated depreciation, December 31, Year 1	1,314,000	2,018,000	704,000
   Year 2 depreciation expense	196,000	259,000	63,000
   Accumulated depreciation, December 31, Year 2	1,510,000	2,277,000	767,000

4. Use the information above to prepare the deferred tax computations and supporting components by completing the following worksheet.

   Enter the appropriate amounts in the designated cells below. Enter all amounts as positive values. Round all answers to the nearest whole dollar. If no entry is necessary, enter a zero (0) or leave the cell blank.

   Stanhope, Inc. Worksheet for Deferred Income Taxes Year ended December 31, Year 2

   Description of temporary differences	Temporary differences	Deferred tax assets	Deferred tax liabilities
   Allowance for credit losses
   Accumulated depreciation
   Unrealized gain (loss) on trading securities