Question

Allmond Corporation, organized on January 3, 2021, had pretax accounting income of $19 million and taxable income of $27 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:

2022	$	4 million	30	%
2023		1 million	30	%
2024		1 million	30	%
2025		2 million	25	%

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?
  

Answer 1

ANSWER1

PARTICULARS	AMOUNT ($ IN MILLION)	TAX RATE	TAX	RECORDED AS
Pretax Accounting Income	$19
Warranty Costs Reversing in:
2022	$4	30%	$1.2
2023	$1	30%	$0.3
2024	$1	30%	$0.3
2025	$2	25%	$0.5
Total Deffered Tax Amount			$2.3	Total Deffered Tax Assets
Income Taxable in Current Year	$27	25%	$6.75	Income Tax Payable

DATE	GENERAL JOURNAL	DEBIT($ in million)	CREDIT ($in million)
	Income Tax Expense	$4.45
	Deffered Tax Assets	$2.30
	Income Tax Payable		$6.75
	(to record for tax expense)

ANSWER2

Almond 2021 Net Income:

Net Income =Pretax Income - Current Year Income Tax

= $19 million - $4.45 million

=$14.55 million.

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