My recommendations would be to take the steps in recording the timing differences in two separate manners. The first would be for the year end works under GAAP, and then record the items with the accepted forms of method with the IRS. The first item is the depreciation with which using straight line works for the books and is an acceptable for of depreciation according to GAAP. The IRS on the other hand does not accept S-L so MACRS will be used for the company’s tax return. (http://www.accountingcoach.com/terms/T/timing-differences.html & http://suite101.com/article/straightline-and-macrs-methods-a69192 ) With the bad debt reserve increase GAAP allows for the allowance method for financial reporting. In the allowance method, writing off bad debt has no effect on the profit and loss statement. The journal entries to remove the bad debt from the books are to debit the allowance for doubtful accounts category, then credit accounts receivable, which are both balance sheet accounts. If a company collects on a previously written-off account, there is also no effect on the profit and loss statement. Reverse the write-off with journal entries that debit accounts receivable and credit allowance for doubtful accounts, then record the cash recovery by debiting the cash account and crediting accounts receivable. Companies on the other hand must use the direct method for tax reporting purposes. In the direct method, companies debit their bad debt expense accounts and credit accounts receivable only after they're certain that they cannot collect on particular accounts. There is no reserve for bad debts in the direct method.” (http://smallbusiness.chron.com/bad-debt-reserve-hit-profit-loss-statement-37796.html )
Then we have the accrued $300,000 in warranty liability at year-end and could not deduct it on the tax return for this year but warranty will be paid out in the following year. The accrued warranty liability will be record on the year end financial statements, but with the timing difference the warranty liability will show on the following tax return. “The warranty calculations can require consideration of beginning balances, additional accruals, and warranty work performed. Assume Zeff Company had a beginning-of-year Warranty Liability account balance of $25,000. During the year Zeff sells $3,500,000 worth of goods, eventually expecting to incur warranty costs equal to 2% of sales ($3,500,000 X 2% = $70,000). The 2% rate is an estimate based on the best information available. Such rates vary considerably by company and product. $80,000 was actually spent on warranty work. How much is the end-of-year Warranty Liability? The T-account reveals an ending warranty liability of $15,000.”