Question

Allmond Corporation, organized on January 3, 2021, had pretax accounting income of $14 million and taxable income of $20 million for the year ended December 31, 2021. The 2021 tax rate is 25%. The only difference between accounting income and taxable income is estimated product warranty costs. Assume that expected payments and scheduled tax rates (based on recently enacted tax legislation) are as follows: 20% 20% 2022 $2 million 20231 million 2024 1 million 2025 2 million 20% 15% Required: 1. Determine the amounts necessary to record Allmond's income taxes for 2021 and prepare the appropriate journal entry. 2. What is Allmond's 2021 net income? Complete this question by entering your answers in the tabs below. Required 1 Calculation Required 1 G Required 2 Determine the amounts necessary to record Allmond's income taxes for 2021. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5). Enter all amounts as positive values.) Tax Rate % Tax $ Recorded as: ($ in millions) $ 14.0 Pretax accounting income Warranty costs reversing in: 2022 2023 2024 2025 Total deferred tax amount Income taxable in current year 0.0

Answer 1

Solution 1:

Particulars	($ in millions)		Tax Rate %		Tax $	Recorded as:
Pretax accounting income	$14.00				$3.90	Income tax expense
Warranty costs reversing in:
2022	$2.00	x	20%	=	$0.40	Deferred tax Assets
2023	$1.00	x	20%	=	$0.20	Deferred tax Assets
2024	$1.00	x	20%	=	$0.20	Deferred tax Assets
2025	$2.00	x	15%	=	$0.30	Deferred tax Assets
Total deferred tax amount					$1.10	Deferred tax Assets
Income taxable in current year	$20.00	x	25%	=	$5.00	Income tax Payable

Journal Entries - Allmond Corporation (In millions)
Date	Particulars	Debit	Credit
31-Dec-21	Income tax expense Dr	$3.90
	Deferred tax asset Dr	$1.10
	To Income taxes payable		$5.00
	(To record income tax expense for the year)

Solution 2:

Net income for 2021 = Pretax income - Income tax expense = $14 - $3.90 = $10.10 million