Farmer Inc. began business on January 1, 2012. Its pretax financial income for the first 2 years was as follows:
2012
240,000
2013
560,000
The following items caused the only differences between pretax financial income and taxable income.
1. In 2012, the company collected $240,000 of rent; of this amount, $80,000 was earned in 2012; the other $160,000 will be earned equally over the 2013-2014 period. The full $240,000 was included in taxable income in 2012.
2. company pays $10,000 a year for life insurance on officers.
3. In 2013, the company terminated a top executive and agreed to $90,000 of severance pay. The amount will be paid $30,000 per year for 2013-2015. The 2013 payment was made. The $90,000 was expensed in 2013. For tax purposes, the severance pay is deductible as it is paid.
The enacted tax rates existing at December 31, 2012 are:
2012
30%
2014
40%
2013
35%
2015
40%
Determine the defered income taxes at the end of 2012 and 2013, and prepare the journal entry to record income taxes for 2012 and 2013.