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The following information is used to answer questions 13, 14, and 15. At the end of YR05, the controller for Street Co. prepared a reconciliation between pretax financial income and taxable income as follows: Description YR05 Pretax financial income 1,000 Accrued Warranty Expense1 200 Accrued Interest Income2 (40) Uncollected Credit Sales3 (300) Taxable income 860 1 - The accrued warranty expense of $200 represents the estimated amount of expense that will be incurred in future years to honor warranty work on YR05 sales. For tax purposes the warranty cost is not deductible until paid since the company is a cash-basis taxpayer. At the end of YR05 the company expects the actual cash payments to honor product warranties on YR05 sales will be as follows: (1) YR06 = $100, (2) YR07 = $100. On the December 31, YR05 balance sheet the company reports a current accrued warranty liability of $100 and a noncurrent accrued warranty liability of $100. 2 At December 31, YR05 the company has earned and accrued $40 of interest income on a bond investment. This interest income will be received on January 15, YR06. For tax purposes, the interest will be taxed in the year received (YR06). On the December 31, YR05 balance sheet the accrued interest receivable is classified as a current asset. 3 In December YR05 the company made credit sales of $300. For tax purposes these sales are not reported in taxable income until the related receivables are collected. At the end of YR05 the company expects the actual cash collections related to these receivables will be as follows: (1) YR06 = $200, (2) YR07 = $100. On the December 31, YR05 balance sheet the company reports current accounts receivable of $200 and noncurrent accounts receivable of $100. Other Information 4. During the year the only journal entry made related to income taxes was to record a tax deposit. That entry was: July 1, YR05: Income Tax Payable 200 Cash 200 5. The Federal income tax rate is 40% for YR05, 30% for YR06, and 20% for YR07 and YR08. 6. For the YR05 tax year the company earned a $50 investment tax credit related to the purchase of equipment. The firm has elected to use the flow-through method for financial reporting purposes. 13. After all adjustments, the December 31, YR05 general ledger balance for the deferred tax asset account should be: a. $20 dr. b. $50 dr. c. $62 dr. d. $92 dr. e. none of the above. 14. After all adjustments, the December 31, YR05 general ledger balance for the deferred tax liability account should be: a. $20 cr. b. $50 cr. c. $62 cr. d. $92 cr. e. none of the above. 15. After all adjustments, the December 31, YR05 general ledger balance for Federal income taxes payable should be: a. $94 cr. b. $144 cr. c. $294 cr. d. $344 cr. e. none of the above

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