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Differences in book basis versus tax basis; deferred income tax

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The differences between the book basis and tax basis of the assets and liabilities at the end of 2008 are as follows:

Book Basis Tax Basis
AR $50,000 -0-
Litigation Liab 30,000 -0-

It is estimated that the litigation liability will be settled in 2009. The difference in accounts receivable will result in taxable amounts of $30,000 in 2009 and $20,000 in 2010. My company has taxable income of $350,000 in 2008 and is expected to have taxable income in each of the following 2 years. Its tax rate is 34% for all years. This is the company's first year of operations. The operating cycle is 2 years.

(a) What is the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2008?
(b) How is the deferred income tax reported on the balance sheet at the end of 2008?

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Solution Summary

The differences in book basis versus tax basis are provided. The deferred income tax are determined.

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