Chapter 17, Problem 17.2P

Temporary Differences, Deferred Tax Liabilities, Change in Tax Rate. Simm-Mills Incorporated (SMI) acquired a piece of equipment at a total cost of $4,200,000. SMI uses the straight-line method for financial reporting and an accelerated method for tax purposes. The asset has a 6-year life for book and tax purposes. There is no estimated scrap value SMI is subject to a 40% tax rate We present the income and depreciation summary for both tax and GAAP

Year	Income before Tax and Depreciation	Tax Depreciation	GAAP Depreciation
1	$ 920,000	$ 840,000	$ 700,000
2	1,600,000	1.344.000	700,000
3	1,780,000	806.400	700,000
4	2,100,000	483.840	700,000
5	1.750.000	483.840	700,000
6	1,200,500	241.920	700,000
Totals		$4,200,000	$4,200,000

Required

1. a. Determine the balance of the deferred tax account at the end of each year.
2. b. Prepare the journal entries to record the tax provision for each year.
3. c. Prepare the journal entry to record the effect of a 35% income tax rate that is enacted into law effective as of the beginning of Year 4.