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Homework #1: Accounting for Income Taxes by SFAS No. 109. Fosteur Company's pretax financial income for 20x6 is $790,000. Temporary differences have been identified as followed. - Depreciation: Tax write-off exceeds financial depreciation by $100,000. - Litigation: Loss taken for financial reporting purposes of $45,000 will be deducted for tax purposes in the distant future. - Warranty: Amount expensed for financial reporting purposes exceeds amount currently deductible for tax purposes by $25,000. The warranty liability is classified as a current liability in the company's balance sheet. The income tax is 35%, and this is Fosteur's first year of operations. REQUIRED: a. Prepare the income tax accrual entry for 20X6, distinguishing between current and noncurrent deferred taxes. b. Identify the income tax elements, including dollar amounts, for the 20X6 balance sheet and income statement. 1. Compute tax due this year: CURRENT TAX EXPENSE (1a) Convert accounting income to taxable income Accounting income 790,000 Taxable income 760,000 (1b) Journal entry for tax due this year 107 2. Compute deferred tax expense (2-a) Interperiod allocation: Current taxable (deductible) amount Future taxable (deductible) Deferred tax payable (asset) 20X6 Total Tax rate Balance of Deferred tax payable (asset) (2-b) Journal Entries 3. Financial Statement Presentation Balance Sheet Income Statement Income before tax Taxes: Current tax expense Deferred tax expense Net income Income tax payable Deferred Tax Payable (Asset)

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