On January 1, 2013, Ameen Company purchased a building for $40
million. Ameen uses straight-line depreciation for financial
statement reporting and MACRS for income tax reporting. At December
31, 2017, the book value of the building was $34 million and its
tax basis was $24 million. At December 31, 2018, the book value of
the building was $32 million and its tax basis was $17 million.
There were no other temporary differences and no permanent
differences. Pretax accounting income for 2018 was $30
million.
Required:
1. Prepare the appropriate journal entry to record
Ameen’s 2018 income taxes. Assume an income tax rate of 40%.
2. What is Ameen’s 2018 net income?
Solution:
1.)
Date | Particulars | Debit ($) | Credit ($) |
2018 | Income tax expense ($30 million*40%) | $12 Million | |
Deferred tax liability ($24 - $17)-($34-$32)*40% | $2 Million | ||
Income tax payable | $10 Million | ||
(To record income tax expense for the year 2018) |
2.)
Ameen's 2018 Net Income = $30 Million - $12 Million =
$18 Million
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