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Sandhill Inc. began business on January 1, 2021. Its pretax financial income for the first 2 years was as follows:

2021		$230,000
2022		550,000

The following items caused the only differences between pretax financial income and taxable income.

1.		In 2021, the company collected $357,000 of rent; of this amount, $119,000 was earned in 2021; the other $238,000 will be earned equally over the 20222023 period. The full $357,000 was included in taxable income in 2021.
2.		The company pays $9,900 a year for life insurance on officers.
3.		In 2022, the company terminated a top executive and agreed to $87,000 of severance pay. The amount will be paid $29,000 per year for 2022-2024. The 2022 payment was made. The $87,000 was expensed in 2022. For tax purposes, the severance pay is deductible as it is paid.

The enacted tax rates existing at December 31, 2021 are:

2021		20%		2023		30%
2022		25%		2024		30%

(a)

Correct answer iconYour answer is correct.

Determine taxable income for 2021 and 2022.

		2021		2022
Taxable income		$		$

(b)

Determine the deferred income taxes at the end of 2021. (Enter negative amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Deferred income taxes

$

Prepare the journal entry to record income taxes for 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

(c)

Prepare a schedule of future taxable and (deductible) amounts at the end of 2022. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

		2023		2024		Total
Future taxable (deductible) amounts:
Rent		$		$		$
Severance pay

(d)

Prepare a schedule of the deferred tax (asset) and liability at the end of 2022. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

							Deferred Tax
Temporary Difference		Future Taxable (Deductible) Amounts		Tax Rate			(Asset)		Liability
Rent		$			%		$		$
Severance pay					%
Totals		$					$		$

(e)

Compute the net deferred tax expense (benefit) for 2022. (Enter negative amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Net deferred tax expense (benefit) for 2022

$

(f)

Prepare the journal entry to record income taxes for 2022. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

(g)

Show how the deferred income taxes should be reported on the balance sheet at December 31, 2022.

Sandhill Inc. Balance Sheet (Partial) Quarter Ended December 31, 2022Year Ended December 31, 2022December 31, 2022
Total AssetsTotal Stockholders' EquityTotal Current AssetsTotal Intangible AssetsProperty, Plant and EquipmentStockholders' EquityTotal Liabilities and Stockholders' EquityCurrent LiabilitiesTotal Property, Plant and EquipmentCurrent AssetsTotal Long-term LiabilitiesLong-term LiabilitiesTotal LiabilitiesTotal Current LiabilitiesOther AssetsLong-term InvestmentsTotal Long-term InvestmentsIntangible Assets
					$

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