Let's solve the problem step by step as requested. --- ### **Step 1: Calculate the amount of income tax expense for 2024.** - **Pretax accounting income (2024):** $572,000 - **Permanent difference (municipal bond interest):** $29,000 (not taxable, so **subtract** from pretax income) - **Temporary difference (depreciation):** $62,000 (tax depreciation exceeds book depreciation, so **subtract** from pretax income for taxable income calculation) **Taxable income calculation:** \[ \text{Taxable income} = \text{Pretax accounting income} - \text{Permanent difference} - \text{Temporary difference} \] \[ = \$572,000 - \$29,000 - \$62,000 = \$481,000 \] **Explanation:** Taxable income is calculated by adjusting pretax accounting income for permanent and temporary differences. The permanent difference (municipal bond interest) is never taxed, while the temporary difference (depreciation) will reverse in future years. --- ### **Step 2: Record the 2024 income tax journal entry at a 25% tax rate.** **Calculate:** - **Current tax payable:** $481,000 (taxable income) × 25% = $120,250 - **Deferred tax liability:** $62,000 (temporary difference) × 25% = $15,500 **Journal Entry:** - **Income Tax Expense:** (balancing figure; will be current tax + deferred tax) - ** Deferred Tax Liability:** $15,500 (credit) - ** Income Tax Payable:** $120,250 (credit) \[ \text{Income Tax Expense} = \text{Current Tax Payable} + \text{Deferred Tax Liability} = \$120,250 + \$15,500 = \$135,750 \] **Journal Entry:** - **Debit Income Tax Expense:** $135,750 - **Credit Deferred Tax Liability:** $15,500 - **Credit Income Tax Payable:** $120,250 **Explanation:** The income tax expense includes both the current tax payable and the deferred tax liability. The deferred tax arises because depreciation is a temporary difference that will reverse in the future. --- ## **Final Answer:** **Journal Entry:** - **Debit Income Tax Expense:** $135,750 - **Credit Deferred Tax Liability:** $15,500 - **Credit Income Tax Payable:** $120,250 --- Let me know if you need it formatted for the journal entry worksheet!