- Prepare the year-end tax entry for each year. Assume that the tax entries are only prepared at the end of the year, i.e., not at the time of the individual transaction.
- Prepare a schedule reconciling before tax earnings to taxable income and derive taxes payable.
- Prepare the schedule of year-end deferred tax assets and liabilities for each year. The schedule should separately list the sources of the firm’s ending deferred tax assets and deferred tax liabilities by their source. For example, the deferred tax asset/liability associated with the book/tax difference associated with the lease should be listed as a single source. The total for each schedule should equal the firm’s deferred tax asset and deferred tax liability balance at the end of the year.
- Prepare a schedule that reconciles the tax on earnings before tax at the statutory rate to tax expense.
