Chapter 17, Problem 17.5E

Temporary Differences, Deferred Tax Assets and Liabilities. Oliver Starshine Group provided the following income information from its first 3 years of operation.

	Year 1		Year 2		Year 3
Account	GAAP	Tax	GAAP	Tax	GAAP	Tax
Sales	$1,100	$1,100	$1,250	$1,250	$1,420	$1,420
Operating expenses	(600)	(600)	(720)	(720)	(833)	(833)
Estimated warranty cost	(110)	0	(125)	0	(142)	0
Actual warranty repairs	0	0	0	(200)	0	(177)
Income before tax	$390		$ 405		$445
Taxable income		$ 500		$ 330		$410
Tax ratio		× 40%		× 40%		× 40%
Tax payable		$ 200		$ 132		$164

Oliver offers a 1-year warranty on its commercial floor polishing system The company estimates its warranty cost at 10% of sales

Required

1. a. Compute the deferred tax expense and the balance of the deferred tax account for each year.
2. b. Prepare all journal entries required to record Oliver’s income tax provision for all 3 years.