Teri Inc., in its first year of operations, has the following differences between the book basis and tax basis of its assets and liabilities at the end of 2010.

Book Basis Tax Basis

Equipment (net) $400,000 $340,000

Estimated warranty liability $200,000 $ -0-

It is estimated that the warranty liability will be settled in 2011. The difference in equipment (net) will result in taxable amounts of $20,000 in 2011, $30,000 in 2012, and $10,000 in 2013. The company has taxable income of $520,000 in 20x0. As of the beginning of 2010, its enacted tax rate is 34% for 2010-2012, and 30% for 2013. Teri expects to report taxable income through 2013.

a)Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2010.

b)Indicate how deferred income taxes will be reported on the balance sheet at the end of 2010 (long-term or current?).

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