Use the information for Jenny Corporation in E18-14, and assume that the company reports accounting income of $155,000 in each of 2015 and 2016 and the warranty expenditures occurred as expected. No reversing difference exists other than the one identified in E18-14.
In Exercise 14
Jenny Corporation recorded warranty accruals as at December 31, 2014, in the amount of $150,000. This reversing difference will cause deductible amounts of $50,000 in 2015, $35,000 in 2016, and $65,000 in 2017. Jenny's accounting income for 2014 is $135,000 and the tax rate is 25% for all years. There are no deferred tax accounts at the beginning of 2014.
Instructions
(a) Calculate the deferred tax balances at December 31, 2015, and 2016.
(b) Calculate taxable income and income tax payable for 2015 and 2016.
(c) Prepare the journal entries to record income taxes for 2015 and 2016.
(d) Prepare the income tax expense section of the income statements for 2015 and 2016, beginning with the line "Income before income tax."
(e) What trend do you notice in the amount of net income reported for 2015 and 2016 in part (d)? Is this a coincidence? Explain.