Reference no: EM133006793

Question - Differences between accounting and taxable income and the effect on deferred taxes. The following differences enter into the reconciliation of financial income and taxable income of Abbott Company for the year ended December 31, 2020, its first year of operations. The enacted income tax rate is 20% for all years.

Pretax accounting income $800,000

Excess tax depreciation (480,000)

Litigation accrual 70,000

Unearned rent revenue deferred on the books but appropriately recognized in taxable income 60,000

Interest income from New York municipal bonds (20,000)

Taxable income $430,000

1. Excess tax depreciation will reverse equally over a four-year period, 2021-2024.

2. It is estimated that the litigation liability will be paid in 2024.

3. Rent revenue will be recognized during the last year of the lease, 2024.

4. Interest revenue from the New York bonds is expected to be $20,000 each year until their maturity at the end of 2024.