Farmer Inc. began business on January 1, 2018. Its pretax financial income for the first 2 years was as follows:
2018 $360,000
2019 680,000
The following items caused the only differences between pretax financial income and taxable income.
1. In 2018, the company collected $396,000 of rent; of this amount, $132,000 was earned in 2018; the other $264,000 will be earned equally over the 2019–2020 period. The full $396,000 was included in taxable income in 2018.
2. The company pays $11,200 a year for life insurance on officers.
3. In 2019, the company terminated a top executive and agreed to $126,000 of severance pay. The amount will be paid $42,000 per year for 2019-2021. The 2019 payment was made. The $126,000 was expensed in 2019. For tax purposes, the severance pay is deductible as it is paid.
The enacted tax rates existing at December 31, 2018 are:
2018 30%
2019 35%
2020 40%
2021 40%
Required:
1. Determine taxable income for 2018 and 2019.
2. Determine the deferred income taxes at the end of 2018.