Question

The information that follows pertains to Richards Refrigeration, Inc.:

At December 31, 2018, temporary differences existed between the financial statement carrying amounts and the tax bases of the following:

	($ in millions)
	Carrying Amount			Tax Basis			Future Taxable (Deductible) Amount
Buildings and equipment (net of accumulated depreciation)	$	140		$	100			$	40
Prepaid insurance		60			0				60
Liability—loss contingency		35			0				(35	)

No temporary differences existed at the beginning of 2018.

Pretax accounting income was $210 million and taxable income was $145 million for the year ended December 31, 2018. The tax rate is 30%.

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

Complete the following table given below to record income taxes for 2018. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5). Negative amounts should be entered with a minus sign.)

	($ in millions) x Tax Rate % = Tax $ Recorded as: Pretax accounting income $210.0 Permanent differences Income subject to taxation x = Temporary Differences Depreciation x = Prepaid insurance x = Liability - loss contingency x = Income taxable in current year x =

Record 2018 Income Taxes

2. What is the 2018 net income?

Answer 1

Part-1		$ in Million	*	Tax Rate %	=	Tax $	Recorded as
	Pretax accounting Income	210
	Permanent Difference	0
	Income Subject to taxation	210	*	30%	=	63	Income Tax Expense
	Temporary Difference:
	Depreciation	-40	*	30%	=	12	Deferred Tax Liability
	Prepaid Insurance	-60	*	30%	=	18	Deferred Tax Liability
	Liability-Contingent Loss	35	*	30%	=	10.5	Deferred Tax Asset
	Income Taxable in current year	145	*	30%	=	43.5	Income Tax Payable
	Journal Entry:
		Debit	Credit
	Income Tax Expense	63
	Deferred Tax Asset	10.5
	Deferred Tax Liability		30
	Income Tax Payable		43.5
Part-2	2018 Net Income
	Pretax Income	210
	Less: Income Tax 30%	63
	Net Income	147

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