E19-20B (Two Differences, No Beginning Deferred Taxes, Multiple Rates)Education Sciences Company, in its first year of operations, has the following differences between the book basis and tax basis of its assets and liabilities at the end of 2014. Book Ba

E19-20B (Two Differences, No Beginning Deferred Taxes, Multiple Rates)Education Sciences Company, in its first year of operations, has the following differences between the book basis and tax basis of its assets and liabilities at the end of 2014.

                                                        Book Basis                       Tax Basis   

Equipment (net)                              $800,000                        $750,000

Estimated warranty liability             150,000                             –0–

It is estimated that the warranty liability will be settled in 2015 ($100,000) and 2016 ($50,000). The difference in equipment (net) will result in taxable (deductible) amounts of $(200,000) in 2015, $(150,000) in 2016, and $200,000 in 2017 and 2018. The company has taxable income of $350,000 in 2014. As of the beginning of 2014, the enacted tax rate is 40% for 2014 and 2015, and 35% for 2016 and thereafter. Education Sciences expects to report taxable income through 2018.

Instructions

(a) Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2014.

(b) Indicate how deferred income taxes will be reported on the balance sheet at the end of 2014.