The Smith Company has been in existence for several years. After a period of growth and equipment acquisitions, the companys operations have stabilized. Smith uses the percentage-of-completion method for revenue recognition for book purposes and the completed contract method for income tax purposes. The company also uses MACRS for income tax purposes and straight-line depreciation for book purposes. The companys pre-tax accounting income is $125,000. The companys income tax rate is 30%. You have identified the following differences in the reporting of items for book and income tax purposes: 1) Excess of straight-line depreciation over MACRS depreciation. 25,000 2) Expenditures capitalized for book purposes but expensed for tax purposes. 1,000 3) Fine paid for late payment of employee tax withholdings. 2,000 4) Interest earned and collected on City of Muncie sewer bonds. 1,500 5) Revenue recognized under percentage of completion method 15,000 6) Rent collected in advance from tenant 4,500 7) Life insurance premiums paid on key executives 3,000 Required: Using Excel, prepare a schedule to compute Smiths taxable income and income tax liability for the current year.

Part 2 Nott Co. at the end of 2020, its second year of operations. The company uses accelerated depreciation methods for income tax purposes and the straight-line method for financial reporting purposes. At the end of 2020, the remaining depreciation book/tax differences will result in $1,000,000 in taxable amounts over the next five years. In 2020, the company reporting for financial reporting purposes $860,000 of estimated expenses that will be tax deductible when paid in 2021. At the end of 2019, the company reported a deferred income tax liability of $200,000 and a deferred income tax asset of $130,000 related to the timing differences between reporting for book and tax purposes. The current enacted tax rate is 45% and no changes are expected in the future. Required: Using Excel, prepare the journal entry to record Nott Co.s income tax expense, deferred taxes, and income taxes payable for 2020.

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