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1. The following information is available for the first two years of operations for Fonseca, Inc.:

Year Taxable Income

2020 $850,000

2021 900,000

1. In 2020 the company has chosen to depreciate all of its fixed assets on an accelerated basis for tax purposes but on a straight-line basis for accounting purposes. The excess tax depreciation over book depreciation is 220,000 and will reverse equally over the next 2 years, 2021-2022.

2. On July 1, 2020, $160,000 was collected in advance for rental of a building for a one-year period July 1, 2020 June 30, 2021. The entire $160,000 was reported as taxable income in 2020. The company uses the accrual basis of accounting for financial statement purposes.

3. In 2021 Fonseca, Company recorded a $40,000 accrual for litigation liability which will be paid in 2022.

4. The company sells its merchandise on an installment contract basis. In 2020, Fonseca, Inc. reported gross profit of $220,000 tax purposes, and $520,000 for financial statement purposes. This will result in taxable amounts of $150,000 in each of the next two years.
5. Warranty expense accrued for financial reporting was $25,000 in 2020. Warranty deductions on the tax returns were $16,000 in 2020 and $9,000 in 2021.

6. Fonseca, Inc. paid a $8,000 fine in 2020 for violating pollution laws.

7. Interest recognized on tax-exempt municipal bonds amounts are fixed and will be $20,000 each year in 2020, 2021 and 2022.

The enacted tax rates existing at December 31, 2020 are 34% for 2020 and 40% for 2021 and thereafter.

Instructions

1. Show how the deferred income taxes should be reported on the Balance Sheet at December 31, 2020.

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