Pumpkin Company, during its first year of operations in 2016, reported taxable income of $170,000 and pretax financial income of $100,000. The difference between taxable income and pretax financial income was caused by two timing differences: excess depreciation on tax return, $70,000; and warranty expenses in excess of warranty payments, $40,000. These two timing differences will reverse in the next three years as follows:
Year Depreciation Warranty Expense
2017 $10,000 $20,000
2018 $20,000 $16,000
2019 $40,000 $4,000
Enacted tax rates are:
2017 30%
2018 35%
2019 40%
Required:
Prepare the income tax journal entry for December 31, 2016.
