You have been assigned to compute the income tax provision for Sparrow Corporation. The company's income statement for 2020 is as follows: Sparrow Corporation Income Statement Year ended 12/31/2020 Net Sales $25,000,000 Cost of Sales 15,500,000 Gross Profit 9,500,000 Other Income: Dividends 200,000 Interest 50,000 Total Other Income 250,000 Gross Income 9,750,000 Expenses: Compensation 2,800,000 Depreciation 1,400,000 Charitable Donations 400,000 Meals and Entertainment 80,000 Other Expenses 3,000,000 Total Expenses 7,680,000 Income Before Income Taxes 2,070,000 You have identified the following permanent differences: Interest from municipal bonds $70,000 Nondeductible Meals and Entertainment Expenses 30,000 Dividend Received Deduction 140,000 Sparrow prepared the following schedule of temporary differences from the beginning of the year to the end of the year. Sparrow Corporation Temporary Difference Scheduling Template Taxable Temp BOY Beginning Current Year EOY Ending Differences Cumulative Deferred Change Cumulative Deferred T/D Taxes @ 21% T.D. Taxes @21% Non-Current Accumulated (3,000,000) (630,000) (500,000) (3,500,000) (735,000 Depreciation Deductible BOY Beginning Current Year EOY Ending Temporary Cumulative Deferred Change Cumulative Deferred Differences T/D Taxes @ 21% T.D. Taxes @2 Current 100,000 21,000 30,000 130,000 27,300 Allowance for Bad Debts Accrued 150,000 31,500 50,000 200,000 42,000 Warranties Total Current 250,000 52,500 80,000 330,000 69,300 Non-current Charitable Contributions 300,000 63,000 80,000 380,000 79,800 Deferred 500,000 105,000 (100,000) 400,000 84,000 Compensation Total Non- 800,000 168,000 (20,000) 780,000 163,800 Current 5. Assume Sparrow's tax rate for the current year increased to 28%. Recompute Sparrow's deferred income tax expense or benefit for 2020 using the template on the following page. Sparrow Corporation Taxable Temp Differences Temporary Difference Scheduling Template BOY Beginning Current Year EOY Cumulative Deferred Change Cumulative T/D Taxes @ 21% T.D. Ending Deferred Taxes @28% (3,000,000) (630,000) (500,000) (3,500,000) EOY BOY Cumulative T/D Beginning Deferred Taxes @ 21% Current Year Change Cumulative T.D. Ending Deferred Taxes @28% 100,000 21,000 30,000 130,000 Non-Current Accumulated Depreciation Deductible Temporary Differences Current Allowance for Bad Debts Accrued Warranties Total Current Non-current Charitable Contributions Deferred Compensation Total Non- 150,000 31,500 50,000 200,000 250,000 52,500 80,000 330,000 300,000 63,000 80,000 380,000 500,000 105,000 (100,000) 400,000 800,000 168,000 (20,000) 780,000 Current You have been assigned to compute the income tax provision for Sparrow Corporation. The company's income statement for 2020 is as follows: Sparrow Corporation Income Statement Year ended 12/31/2020 Net Sales $25,000,000 Cost of Sales 15,500,000 Gross Profit 9,500,000 Other Income: Dividends 200,000 Interest 50,000 Total Other Income 250,000 Gross Income 9,750,000 Expenses: Compensation 2,800,000 Depreciation 1,400,000 Charitable Donations 400,000 Meals and Entertainment 80,000 Other Expenses 3,000,000 Total Expenses 7,680,000 Income Before Income Taxes 2,070,000 You have identified the following permanent differences: Interest from municipal bonds $70,000 Nondeductible Meals and Entertainment Expenses 30,000 Dividend Received Deduction 140,000 Sparrow prepared the following schedule of temporary differences from the beginning of the year to the end of the year. Sparrow Corporation Temporary Difference Scheduling Template Taxable Temp BOY Beginning Current Year EOY Ending Differences Cumulative Deferred Change Cumulative Deferred T/D Taxes @ 21% T.D. Taxes @21% Non-Current Accumulated (3,000,000) (630,000) (500,000) (3,500,000) (735,000 Depreciation Deductible BOY Beginning Current Year EOY Ending Temporary Cumulative Deferred Change Cumulative Deferred Differences T/D Taxes @ 21% T.D. Taxes @2 Current 100,000 21,000 30,000 130,000 27,300 Allowance for Bad Debts Accrued 150,000 31,500 50,000 200,000 42,000 Warranties Total Current 250,000 52,500 80,000 330,000 69,300 Non-current Charitable Contributions 300,000 63,000 80,000 380,000 79,800 Deferred 500,000 105,000 (100,000) 400,000 84,000 Compensation Total Non- 800,000 168,000 (20,000) 780,000 163,800 Current 5. Assume Sparrow's tax rate for the current year increased to 28%. Recompute Sparrow's deferred income tax expense or benefit for 2020 using the template on the following page. Sparrow Corporation Taxable Temp Differences Temporary Difference Scheduling Template BOY Beginning Current Year EOY Cumulative Deferred Change Cumulative T/D Taxes @ 21% T.D. Ending Deferred Taxes @28% (3,000,000) (630,000) (500,000) (3,500,000) EOY BOY Cumulative T/D Beginning Deferred Taxes @ 21% Current Year Change Cumulative T.D. Ending Deferred Taxes @28% 100,000 21,000 30,000 130,000 Non-Current Accumulated Depreciation Deductible Temporary Differences Current Allowance for Bad Debts Accrued Warranties Total Current Non-current Charitable Contributions Deferred Compensation Total Non- 150,000 31,500 50,000 200,000 250,000 52,500 80,000 330,000 300,000 63,000 80,000 380,000 500,000 105,000 (100,000) 400,000 800,000 168,000 (20,000) 780,000 Current