You have taken a job with the Keystone XL Oil Pipeline Project Corporation. Your starting salary is $14,000 per year. It sounds like it is time for a new car! Because this is a high profile corporation, and they know you when to the UOP, you have been selected to keep account of their accounting and tax differences. The controller has come into your 10X10 office and had the following discussion with you.

He related to you that prior to 2010, taxable income and pretax financial income were identical. He believes this is due to the current economy. He stated they have had some good years and that Pretax financial income is $1,700,000 in 2010 and $1,400,000 in 2011. In anticipation of a big job coming up the company purchased some additional equipment so on January 1, 2010, equipment costing $1,000,000 was purchased. It is to be depreciated on a straight-line basis over 5 years for tax purposes and over 8 years for financial reporting purposes. He tells you to dig out your old accounting book on how to handle tax depreciation in the first year. The company invests in the local municipality and earned interest of $60,000 on tax-exempt municipal obligations in 2011. The company included in their 2011 pretax financial income is an extraordinary gain of $200,000, which is fully taxable. He told you the tax rate is 35% for all periods. Unless the government does something stupid like raise taxes. Since the company is sound he expects the company to have taxable income in all future years.

He wants you to compute taxable income and income tax payable for 2011, prepare the journal entry to record 2011 income tax expense, income tax payable, and deferred taxes, prepare the bottom portion of The Keystone XL Oil Pipeline Project Corporation's 2011 income statement, beginning with "Income before income taxes and extraordinary item," and indicate how deferred income taxes should be presented on the December 31, 2011, balance sheet.