Compute income tax payable-prepare journal entries

(Two Temporary Differences, One Rate, Beginning Deferred Taxes) The following facts relate to Krung Thep Corporation.

1.Deferred tax liability, January 1, 2007, $40,000.

2.Deferred tax asset, January 1, 2007, $0.

3.Taxable income for 2007, $95,000.

4.Pretax financial income for 2007, $200,000.

5.Cumulative temporary difference at December 31, 2007, giving rise to future taxable amounts, $240,000.

6.Cumulative temporary difference at December 31, 2007, giving rise to future deductible amounts, $35,000.

7.Tax rate for all years, 40%.

8.The company is expected to operate profitably in the future.

Instructions

a. Compute income taxes payable for 2007.

b. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2007.

c. Prepare the income tax expense section of the income statement for 2007, beginning with the line "Income before income taxes."