Question

Sherrod, Inc., reported pretax accounting income of $88 million for 2018. The following information relates to differences between pretax accounting income and taxable income: a. Income from installment sales of properties included in pretax accounting income in 2018 exceeded that reported for tax purposes by $7 million. The installment receivable account at year-end had a balance of $8 million (representing portions of 2017 and 2018 installment sales), expected to be collected equally in 2019 and 2020. b. Sherrod was assessed a penalty of $3 million by the Environmental Protection Agency for violation of a federal law in 2018. The fine is to be paid in equal amounts in 2018 and 2019. c. Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $96 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions): Difference Tax Return Income Statement $ (7) (20) $24 31 2017 2018 24 44 2019 24 14 10 24 7 17 2020

Answer 1

Answer Page No 0 0 Toral enstany Pose tax accounting income = $88 Back permanent difference = $3 Adjusted pretaz accounting income = 488 + $3 $91 Deducta excess from prestallarent sales = 47 Facess faz depreciation = 620 Fress carranty expense = 44-43 - 1 Expense for folüre absences = $13 Lors contingency nevensal = $a Taxable income = 91-7-20 +1713 - 2 = $76 Deferred tax asset - 40% *(* 1 + $13 – $2) , = $408 . Detered fase diability = 40% *(~4+20) - $10.8

Page No ① Tara Jayable = 40 Y. X 76 = $ 3014 Particular Tax expense Deberred tax asset Detened tax liability Taxes payable Debil (million) Gredit (million $36144 $ 468 $10.8 $ 30.4 @ 2018 Det income Pretax accounting Pncome - $88 Tar expense = $36.4 Net income = 88 - 364 51.6 1 : 2018 nebo income = $51.6 million * Determined tax amounts from installment receivable, 2017 current deferred tax liability = 40%*$4.

- 2018 noncurrent cleteved tax liabila 40%. x6 Page.no . =$16 from depreciations ; Non coerent debewed tax liability = 40%.[(24429–(red) = 40%(48 -21) $10.8 from coarranty expense |payable; Current de coured tax asset - 40%*$3 = $112 from the accrued esperse I payable, Current deberred taz asset = 40%*$= $ 2.8 Alon - corrent deberred tar anset = 404 x$6 = $ 204 Het current deberred tax asset = (12+2-8) – $16 : $2,40 Net current deferred tax asset = $2.401 : Net son cuirent detesored tax liability - 2.40 - (1.671018) Linet noncurrent del cured fax liability = $10