Name: __________________________ Problem chapter 19
1. Deferred income taxes.
Lexicon Co. at the end of 2012, its first year of operations, prepared a reconciliation between pretax
financial income and taxable income as follows:
Pretax financial income $ 3,500,000
Extra depreciation taken for tax purposes (2,100,000)
Estimated expenses deductible for taxes when 1,200,000
Taxable income $ 2,600,000
Use of the depreciable assets will result in taxable amounts of $700,000 in each of the next three years.
The estimated litigation expenses of $1,200,000 will be deductible in 2014 when settlement is expected.
(a) Prepare a schedule of future taxable and deductible amounts.
(b) Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for
2012, assuming a tax rate of 30% for all years.