Watson Co. begins operations on January 1, 2019.

They prepare financial statements in conformity with U.S. GAAP

Below is information regarding Watson Co. for 2019.

Tropical Island's financial statement income before taxes is: $ 4,500,000

The average tax rate is correctly determined to be: 30%

The tax accountant tells you Watson Co. is eligible for a Small Business Health Care Credit. Total credit is: $ 50,000

Estimated Allowance for Bad Debts was booked resulting in bad debt expense for books being higher than for tax by: $ 68,000

Purchase of computers (5-year property) on 1/1/2019 (8-year straight line, $100,000 salvage value used for book; MACRS for taxes) $ 900,000

Interest income from municipal bonds $ 175,000

Advertising expense for both book and tax $ 432,000

The warranty liability on 12/31/2019 is: $ 462,000

Dividend income from US company where Watson Co. owns 5% of the shares (70% rule) $ 168,000

Unearned revenue resulting from cash advances from customers on 12/31/2019 (Cash basis used for taxes) $ 225,000

Sales made where the accrual method is used for books (revenue recognized this year), but the installment method used for tax (revenue included next year). $ 197,000

Proceeds from life insurance on Chief Operating Officer $ 350,000

Premiums on life insurance of key employees $ 65,000

1) Prepare the deferred tax journal entry for 2019.

2) Prepare the income statement beginning with income before taxes.