Button Company has the following two temporary differences between its income tax expense and income taxes payable2017 2018 2019 Pretax financial income \(840,000 \)910,000 \(945,000 Excess depreciation expense on tax return (30,000) (40,000) (10,000) Excess warranty expense in financial income 20,000 10,000 8,000 Taxable income \)830,000 \(880,000 \)943,000 The income tax rate for all years is 40%. Instructions (a) Assuming there were no temporary differences prior to 2017, prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, 2018, and 2019. (b) Indicate how deferred taxes will be reported on the 2019 balance sheet. Button’s product warranty is for 12 months. (c) Prepare the income tax expense section of the income statement for 2019, beginning with the line “Pretax financial income.”

Date

Particulars

Debit

Credit

2017

Income tax expense

$336,000

Deferred tax asset$\left(\$20,000\times 40\%\right)$

$8,000

Deferred tax liability

$\left(\$30,000\times 40\%\right)$

$12,000

Income tax payable

$\left(\$830,000\times 40\%\right)$

$332,000

(To record the income tax expense)

2018

Income tax expense

$364,000

Deferred tax asset$\left(\$10,000\times 40\%\right)$

$4,000

Deferred tax liability

$\left(\$40,000\times 40\%\right)$

$16,000

Income tax payable

$\left(\$880,000\times 40\%\right)$

$352,000

(To record the income tax expense)

2019

Income tax expense

$378,000

Deferred tax asset$\left(\$8,000\times 40\%\right)$

$3,200

Deferred tax liability

$\left(\$10,000\times 40\%\right)$

$4,000

Income tax payable

$\left(\$943,000\times 40\%\right)$

$377,200

(To record the income tax expense)

Liabilities

Amount

Long-term liabilities

Deferred tax liability

$32,000

Asset

Amount

Current assets

Deferred tax asset

$15,200

Particulars

Amount

Pretax financial income

$945,000

Less: Income tax expense

Current tax expense

$377,200

Deferred tax expense

$800

$378,000

Net Income

$567,000