The following information was disclosed during the audit of Buffalo Inc. 1. Year Amount Due per Tax Return $133,800 102,900 2017 2018 2. On January 1, 2017, equipment costing $587,600 is purchased. For financial reporting purposes, the company uses straight-line depreciation over a 5-year life. For tax purposes, the company uses the elective straight-line method over a 5-year life. (Hint: For tax purposes, the half-year convention as discussed in Appendix 11A must be used.) 3. In January 2018, $228,000 is collected in advance rental of a building for a 3-year period. The entire $228,000 is reported as taxable income in 2018, but $152,000 of the $228,000 is reported as unearned revenue in 2018 for financial reporting purposes. The remaining amount of unearned revenue is to be recognized equally in 2019 and 2020. 4. The tax rate is 40% in 2017 and all subsequent periods. (Hint: To find taxable income in 2017 and 2018, the related income taxes payable amounts will have to be "grossed up.") 5. No temporary differences existed at the end of 2016. Buffalo expects to report taxable income in each of the next 5 years. Determine the amount to report for deferred income taxes at the end of 2017, and indicate how it should be classified on the balance sheet. The amount to report for deferred income taxes Buffalo Inc. Balance Sheet X TA Prepare the journal entry to record income taxes for 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Income Tax Expense xx> Deferred Tax Asset Income Tax Payable Draft the income tax section of the income statement for 2017, beginning with "Income before income taxes." (Hint: You must compute taxable income and then combine that with changes in cumulative temporary differences to arrive at pretax financial income.) (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Buffalo Inc. Income Statement (Partial) For the Year Ended December 31, 2017 X Income before Income Taxes Income Tax Expense X Current " x Deferred X X Net Income / (Loss) TA Determine the deferred income taxes at the end of 2018, and indicate how they should be classified on the balance sheet. x The deferred income taxes Buffalo Inc. Balance Sheet 1 x X Prepare the journal entry to record income taxes for 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Income Tax Expense x Deferred Tax Asset x Income Tax Payable Draft the income tax section of the income statement for 2018, beginning with "Income before income taxes." (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Buffalo Inc. Income Statement (Partial) For the Year Ended December 31, 2018 Income before Income Taxes Income Tax Expense X Current x Deferred xwwwww X Net Income / (Loss)
