The following differences between financial and taxable income were reported by Megan Corporation for the year:

(a)	Excess of tax depreciation over book depreciation	$10,000
(b)	Interest revenue on municipal bonds	9,000
(c)	Excess of estimated warranty expense over actual expenditures	54,000
(d)	Rent of next year paid	12,000
(e)	Fines paid	30,000
(f)	Excess of income reported under percentage-of-completion accounting for financial reporting over completed-contract accounting used for tax reporting	45,000
(g)	Interest on indebtedness incurred to purchase tax-exempt securities	3,000
(h)	Unrealized losses on marketable securities recognized for financial reporting	18,000

Instructions

(1) Assume that Megan Corporation had pretax accounting income [before considering items (a) through (h)] of $900,000 for the current year. Compute the taxable income for the current year.

(2) Make entries to record income tax expense for the year assuming that the tax rate is 35% this year and 20% starting next year.

(3) Prepare the income tax expense section of the income statement, beginning with "Income before income taxes."

(4) Indicate how deferred income taxes should be presented on the balance sheet.