Problem 2: The following information is available for the firstfour years of operations for Jones Company

   Year          Earnings Before Tax

   2018          $800,000

   2019             730,000

2. On January 2, 2018, heavy equipment costing $600,000 waspurchases. The equipment had a life of 5 years and no salvagevalue. The straight-line method of depreciation is used for bookpurposes and the tax depreciation taken each year is listedbelow

             

Tax Depreciation

2018       2019          2020          2021          2022 Total

$198,000   270,000      90,000          42,000           0600,000

3. The company sells its merchandise on an installment contractbasis. In 2018, Jones Co. elected, for tax purposes, to report thegross profit from the sales in the year the receivables arecollected. However, for financial statement purposes, the companyrecognized all the gross profit ($800,000) in 2018. theseprocedures created a $600,000 difference between book and taxableincomes. The future collections of the installment contractsreceivables are expected to result in taxable amounts of $200,000one acc of the next three years.

4. In 2018 Jones Co. recorded $70,000 accrual for litigationliability which will be paid in 2019.

5. The enacted tax rates are 40% for 2018, 34% for the yearsafter

Instructions

Prepare a schedule comparing depreciation for finances reportingand tax purposes for all years

Prepare a reconciliation of Book Income to Taxable Income for2018

Prepare a schedule of future taxable and (deductible) amounts atthe end of 2018

Prepare a schedule of deferred tax (asset) and liability at theend of 2018

Prepare the journal entry to record income tax expense, deferredincome taxes, and income tax payable