To complete a reconciliation of pretax financial income and taxable income, solving for the amount of pretax financial income, we must first determine the amount of temporary differences arising or reversing during the year. To accomplish that, we must determine the amount of cumulative temporary differences underlying the beginning balances of the deferred tax liability of $66,000 and the deferred tax asset of $22,000.

$66,000 40%	=	$165,000 beginning cumulative temporary difference.
$22,000 40%	=	$55,000 beginning cumulative temporary difference.

Cumulative temporary difference at 12/31/17
which will result in future taxable amounts		$253,000
Cumulative temporary difference at 1/1/17
which will result in future taxable amounts		(165,000	)
Originating difference in 2017 which will
result in future taxable amounts		$88,000
Cumulative temporary difference at 12/31/17
which will result in future deductible amounts		$104,500
Cumulative temporary difference at 1/1/17
which will result in future deductible amounts		55,000
Originating difference in 2017 which will
result in future deductible amounts		$49,500
Pretax financial income		$ X
Originating difference which will result in future
taxable amounts		(88,000	)
Originating difference which will result in future
deductible amounts		49,500
Taxable income for 2017		$115,500

Solving for pretax financial income: X $88,000 + $49,500 = $115,500 X = $154,000 = Pretax financial income

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Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable 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 O for the amounts.) Account Titles and Explanation Deferred Tax Asset Debit Credit Income Tax Expense Deferred Tax Liability Income Tax Payable SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT