Question

The information that follows pertains to Richards Refrigeration, Inc.: a. At December 31, 2018, temporary differences existed between the financial statement carrying amounts and the tax bases of the following: ( in millions ) Future Taxable (Deductible) Carrying Таx Basis Amount $47 Amount Buildings and equipment (net of accumu lated depreciation) Prepaid insurance Liability-loss contingency $154 $107 67 67 (42) 42 b. No temporary differences existed at the beginning of 2018. c. Pretax accounting income was $217 million and taxable income was $145 million for the year ended December 31, 2018. The tax rate is 35%. 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? Complete this question by entering your answers in the tabs below. Required 1 Calculation Required 2 Required 1 GJ 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.)

Answer 1

Solution 1:

Particulars	Amount (In millions)	Rate of Tax	Tax (In millions)	Recorded as
Pretax accounting income	$217.00
Permanent difference	$0.00
Income subject to taxation	$217.00	35%	$75.95	Income tax expense
Temporary differences:
Depreciation	-$47.00	35%	-$16.45	Deferred tax liability
Prepaid insurance	-$67.00	35%	-$23.45	Deferred tax liability
Liability - Loss contigency	$42.00	35%	$14.70	Deferred tax assets
Income taxable in current year	$145.00	35%	$50.75	Income Tax Payable

Journal Entries
Date	Particulars	Debit (In million)	Credit (In million)
31-Dec-18	Income tax expense Dr	$75.95
	Deferred tax assets Dr	$14.70
	To Income taxes payable		$50.75
	To Deferred tax liability		$39.90
	(To record income tax expense)

solution 2:

Net income = Income before taxes - Income tax expense = $217 - $75.95 = $141.05 million