The following differences enter into the reconciliation of financial income and taxable income of Abbott Company for the year ended December 31, 2017, its first year of operations. The enacted income tax rate is 30% for all years.

Pretax accounting income $800,000

Excess tax depreciation 480,000

Litigation accrual 70,000

Unearned rent revenue deferred on the books but appropriately recognized in taxable income

60,000 Interest income from New York municipal bonds 20,000

1. Excess tax depreciation will reverse equally over a four-year period, 2018-2021.

2. It is estimated that the litigation liability will be paid in 2021.

3. Rent revenue will be recognized during the last year of the lease, 2021.

4. Interest revenue from the New York bonds is expected to be $20,000 each year until their maturity at the end of 2021.

(a) Compute taxable income for 2017.

(b) Prepare a schedule of future taxable and (deductible) amounts for the transactions listed above and show how they lead to the ending balance in the DTA/DTL accounts for 2017. Future Taxable (deductible amounts) 2018 2019 2020 2021 Total

(c) Record the tax journal entry for 2017

(d) Report the tax portion of the income statement for 2017

(e) Suppose Abbott finds out at the beginning of January 2018 prior to releasing the 2017 financial statements that its major customer filed for bankruptcy. Based upon this information, there is a 60% chance Abbott will sustain tax losses into the future such that they will not be able to use any of the DTA. Would you record an entry based upon this new information, if so what would it be?

(f) Suppose Congress enacts a new tax rate in December 2017, effective beginning in 2020, the new tax rate will be 20%. Prepare a modified schedule of future taxable and (deductible) amounts for the transactions listed above and show how they lead to the ending balance in the DTA/DTL accounts for 2017. Show corresponding journal entries. 2018 2019 2020 2021