Question

  

($ 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	)

2. No temporary differences existed at the beginning of 2018.
3. 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?
  

Answer 1

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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