Reference no: EM13482857

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.