Question

In: Accounting

   ($ in millions) Carrying Amount Tax Basis Future Taxable (Deductible) Amount Buildings and equipment (net...


  

($ in millions)
Carrying
Amount
Tax
Basis
Future Taxable
(Deductible)
Amount
Buildings and equipment (net of accumulated depreciation) $ 128 $ 94 $ 34
Prepaid insurance 54 0 54
Liability—loss contingency 29 0 (29 )
  1. No temporary differences existed at the beginning of 2018.
  2. Pretax accounting income was $204 million and taxable income was $145 million for the year ended December 31, 2018. The tax rate is 40%.

Required:
1. Complete the following table given below and prepare the appropriate journal entry to record income taxes for 2018
2. What is the 2018 net income?
  

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Expert Solution

Answer
1) Particulars Amount (In millions) Rate of Tax Tax (In millions) Recorded as
Pretax accounting income $                         204
Permanent difference $                            -  
Income subject to taxation $                         204 40% $                 81.6 Income tax expense
Temporary differences:
Depreciation $                          -34 40% $                 13.6 Deferred tax liability
Prepaid insurance $                          -54 40% $                 21.6 Deferred tax liability
Liability - Loss contingency $                           29 40% $                 11.6 Deferred tax assets
Income taxable in current year $                         145 40% $                 58.0 Income Tax Payable
Journal Entries
Particulars Debit (In million) Credit (In million)
Income tax expense $                         81.6
Deferred tax assets Dr $                         11.6
       To Income taxes payable $                       35.2
       To Deferred tax liability $                       58.0
(To record income tax expense)
2) Net Income for 2018
= Pretax accounting income - Income tax expense
        = $204 - $81.6
         = 122.4 million

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