Chapter 17, Problem 17.9E

Change in Tax Rates, Permanent Difference, Reconciliation of Statutory Tax Rate to Effective Tax Rate. Using the same information provided in E17-8, assume that Meyer-Swift invested in tax-free municipal bonds. The bonds pay interest of $1,000 each year In addition, a new tax law enacted at the beginning of Year 2 reduced the corporate tax rate to 30%.

Required

1. a. Prepare the journal entries required to record the tax provision for all 3 years, as well as the journal entry needed to record the effect of the tax rate change on any deferred tax accounts
2. b. Determine the net income reported on the income statement for all 3 years
3. c. Prepare the footnote in dollars and percentages required to reconcile the company’s federal statutory income tax rate with its effective tax rate

E17-8 Temporary Differences. Deferred Tax Liabilities. Meyer-Swift Construction Equipment Manufacturers engaged in an installment sale with one of its major customers. The firm negotiated the terms of the installment sale for a specialized piece of equipment full payment is required within 3 years We present information related to Meyer-Swift's first 3 years of operation.

	Year 1		Year 2		Year 3
Account	GAAP	Tax	GAAP	Tax	GAAP	Tax
Sales	$5,000	$5,000	$6,200	$6,200	$7800	$7800
Gross profit on installment sates	3,200	0	0	0	0	0
Taxable portion of cash collected on installment sates		700		1,500		1,000
Operating expenses	(500)	(500)	(620)	(620)	(780)	(780)
Income before tax	$7,700		$5,580		$7020
Taxable income		$5,200		$7,080		$8,020
Tax rate		×35%		× 35%		× 35%
Tax payable		$1,820		$2,478		$2,807

Required

1. a. Prepare the journal entries required to record the tax expense for all 3 years.
2. b. Determine the net income reported on the income statement for the 3 years.