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Problem 1:

The information is available for the first year of operationsfor Medeiros, Inc.

The following differences enter into the reconciliation offinancial income and taxable income of Medeiros, Inc. for the yearended December 31, 2018, its first year of operations. The enactedincome tax rate is 40% for all years

a) The company has chosen to depreciate all of its fixed assetson an accelerated basis for tax purposes but on a straight-linebasis for accounting purposes. The excess tax depreciation overbook depreciation is 240,000 and will reverse equally over afour-year period, 2019-2022.

b) In 2018 the company incurred a lawsuit which is probable andestimated at $120,000. It has been properly recorded as alitigation liability at 12/31/18 and will be paid in 2019.

c) On October 1, 2018 the company received a rental incomepayment of $120,000 which covers 24 months. The unearned rentrevenue has been properly recorded on the books and the full amountappropriately recognized in taxable income for the year endingDecember 31, 2018.

d) The company will receive interest revenue from the New Yorkbonds of $21,000 each year until their maturity at the end of2024

e) In 2018, Medeiros insured the lives of its chief executives.The premiums paid amount to $45,000 and this amount was shown as anexpense on the income statement.

f) Pretax accounting income was $950,000 in 2018.

Instructions

Prepare a reconciliation of Pretax accounting income to TaxableIncome

2) Prepare a schedule of future taxable and (deductibleamounts)

3) Prepare a schedule of the deferred tax (asset) andliability

4) Prepare the journal entry to record income tax expense,deferred taxes, and the income       taxes payable for 2018