E19-17b (two temporary differences, tracked through 3 years, multiple

E19-17B (Two Temporary Differences, Tracked through 3 Years, Multiple Rates)Taxable income and pretax financial income would be identical for Ursula Co. except for its depreciation on equipment purchased in 2014 for $500,000 and estimated costs of warranties. The following income computations have been prepared.

                 Taxable income                                      2014                  2015                      2016        

Excess of revenues over expenses

(excluding two temporary differences)          $ 265,000         $ 630,000             $ 250,000

Tax Depreciation                                                (125,000)          (200,000)             (175,000)

Expenditures for warranties                               (10,000)            (50,000)                (15,000)

Taxable income                                                $ 130,000          $ 380,000                $ 60,000

              Pretax financial income                            2014                   2015                        2016

Excess of revenues over expenses

(excluding two temporary differences)         $ 265,000          $ 630,000              $  250,000

Book depreciation                                             (100,000)          (100,000)                (100,000)

Estimated cost of warranties                              (75,000)               –0–                           –0–    

Income before taxes                                          $ 90,000           $ 530,000               $ 150,000 

The tax rates in effect are: 2014 and 2015, 30%; 2016 and thereafter, 40%. All tax rates were enacted into law on January 1, 2014. No deferred income taxes existed at the beginning of 2014. Taxable income is expected in all future years.


Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2014, 2015, and 2016.

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