The following differences enter into the reconciliation of financial income and taxable income of Abbot Company for the year ended December 31, 2014, its first year of operations. The enacted income rate is 30% for all years.

Pertax accounting income $700,000

Excess tax depreciation (360,000)

Litigation accrual 70,000

Unearned rent revenue deferred on books but appropriately

recognized 60,000

Interest Income form New York municipal bonds (20,000)

Taxable income $450,000

1. Excess tax depreciation will reverse equally over a four-year period, 2015-2018

2. It is estimated that the litigation liability will be paid in 2018

3. Rent revenue will be recognized during last year lease, 2018

4. Interest revenue from New york bonds is expected to be $20,000 each year untill maturity at the end of 2018.

Instructions.

(a) Prepare a schedule of future taxable and (deductible) amounts

(b) Prepare a schedule of the deferred tax (assets) and liability at the end of year 2014.

(c) since this is the first year of operations, there is no beginnig deffered tax asset or liability. Compute the net deferred tax expense (benefit).

(d) Prepare the journal entry to record income tax expense, deffered taxes, and income taxes payable for 2014.