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Hundley, Corp. started business on Jan. $1,2024$ and just completed its first year of operations. The

company has a number of differences between its pretax financial income and its taxable income. The

differences and additional information about Hundley at the end of $2024$ are as follows:

a$)$ Hundley received $$18,000$ in dividends from an investment in another corporation. For tax

purposes the investment qualifies for the special dividend deduction of $80$ percent.

b$)$ On July, $12024$ Hundley was able to sub$-$lease part of its warehouse. The lease is for $18$ months

at a rate of $$3,000$ per month. The lessee paid all of the rent in advance.

c$)$ On November $1,2024$ Hundley incurred a $$7,500$ fine from the government due to penalties

levied by OSHA $($Occupational Safety and Health Administration$).$ Hundley paid the fine on

Nov. $15,2024.$

d$)$ Hundley sells a product covered by a $2-$year warranty. Warranty expense recognized for financial

purposes was $$35,000.$ Customer warranty claims for $2024$ totaled $$12,000.$

e$)$ Hundley invested its excess cash in NC municipal bonds. Interest income received on tax$-$exempt

municipal bonds totaled $$9,400.$

f$)$ Hundley purchased life insurance on its corporate officers. Insurance premiums totaled $$13,000.$

g$)$ The company purchased a machine at the beginning of $2024.$ The machine had a cost of

$$240,000.$ For financial statements Hundley assumes an expected useful life of $5$ years with no

salvage value. Hundley uses straight$-$line depreciation for financial statement purposes and

MACRS for tax purposes. For tax purposes the assets qualify as a $3\mathrm{.}5$ year property. The

MACRS depreciation rates are: year $1-23\%,$ year $2-44\%,$ year $3-25\%$ and year $4-8\%.$

h$)$ Hundley reported $$12,000$ of unrealized holding gains on its trading securities portfolio. None of

the investments were sold during $2024.$

The $2024$ corporate statutory tax rate is $21\%.$ Income tax payments are due April $15,2025.$

For $2024$ Hundley reported pretax financial income of $$126,500.$ However, Hundley is forecasting

operating losses for the next three years of operations as it enters overseas markets.

Required:

For each of the above items, indicate whether the difference between book income and taxable

income is a permanent or a temporary difference. For any temporary differences, also indicate

whether the difference gives rise to a deferred tax asset or a deferred tax liability.

Prepare a reconciliation of book$-$tax differences starting with pretax financial income and ending

with IRS taxable income.

Prepare Hundley's income tax journal entry for $2024,$ for this journal entry account for each

temporary difference independently. Show your work.

Prepare a $5-$year schedule of the changes in the DTL related to the purchase of equipment. The

schedule should show the balance in the DTL at the end of each year and the debit or credit that

would be made to the DTL each year.

What amount$($s$)$ would appear in Hundley's balance sheet with respect to its income taxes?

Where specifically in the balance sheet would the amount$($s$)$ be disclosed?

Calculate Hundley's effective tax rate, show your work.

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