Walsh Services computed pretax financial income of $220,000 for 2017 and $288,000 for 2018. In preparing the income tax return for the year, the tax accountant determined the following differences between financial income and taxable income for 2017 and 2018:

2017 2018

(1) Nondeductible expenses $40,000 30,000

(2)Nontaxable revenues 14,000 22,000

(3) Unearned rent of next two 20,000

years received

(4) Installment sales in financial 70,000

income but not in taxable income

The temporary Installment sales difference is expected to reverse in the following pattern:

2018 $14,000

2019 32,000

2020 24,000

$70,000

(5) Walsh purchase a new machine in 2018 for $150,000 and depreciates $50,000 a year from 2018 to 2020. For tax reporting, the depreciation expense is as follows:

2018 $100,000

2019 35,000

2020 15,000

$150,000

The enacted tax rates for this year and the next three years are as follows:

2017 40%

2018 35%

2019 32%

2020 30%

Instructions

(1) Prepare schedule showing the reversal of the temporary differences and the computation of income taxes payable and deferred tax assets or liabilities as of December 31, 2017.

(2) Prepare journal entries to record income taxes payable and deferred income taxes for 2017.

(3) Prepare the income statement for Walsh Services beginning with "Income from continuing operations before income taxes" for the year ended December 31, 2017.

(4) Prepare journal entries to record income taxes payable and deferred income taxes for 2018.

(5) Prepare the income statement for Walsh Services beginning with "Income from continuing operations before income taxes" for the year ended December 31, 2018.