Stedman uses the accrual method for financial accounting purposes and the cash basis for tax reporting. The following information is for Stedman, Inc. for the year-ended December 31, 2010:

A. Pretax financial income @ 12/31/10 = $ 10,200,000

B. Pretax financial income @ 12/31/11 = $ 19,800,000

C. Tax rate = 38%

1. On July 1, 2010, Stedman purchased delivery vehicles for $210,000. They depreciate them over 7 years on the straight-line basis for financial income and 7-year MACRS for taxable income.

2. On August 1, 2010 Stedman sold various 12-month magazine subscriptions to customers for $600,000. The first of twelve monthly magazines will be delivered on September 1, 2010 and the last one on August 1, 2011. All $600,000 of subscriptions are received in cash on August 1, 2010.

3. Stedman accrued an additional $85,000 and $92,000 for contingent liabilities in 2010 and 2011 respectively. Actual warranties paid out were $57,000 and $71,000 in 2010 and 2011 respectively.

4. Interest received on municipal bonds totaled $ 210,000 and $ 235,000 respectively in 2010 and 2011. In 2011, Stedman purchased additional bonds and paid $ 35,000 to a broker to make the transaction.

5. Stedman paid $ 61,000 and $ 62,000 in 2010 and 2011, respectively, for premiums on life insurance policies. Upon the death of a key officer in 2011, Stedman received $ 7,500,000 in proceeds from the life insurance policy.

6. In 2011, Stedman had a tornado destroy its manufacturing facilities. As a result, Stedman recorded an extraordinary loss of $ 1,500,000. This amount is not included in Pretax Financial Income.

Assuming no other differences between financial and tax income and no beginning balances for deferred tax assets or deferred tax liabilities, please complete the following.

A. Make journal entries to record income taxes payable, income tax expense and deferred assets/liabilities for 2010 and 2011.

B. Prepare the ending portion of the 2011 Income Statement starting with Income Before Income Taxes.

C. Please figure the effective tax rate for 2010.