Question

For the year ended December 31, 2018, Fidelity Engineering reported pretax accounting income of $989,000. Selected information for 2018 from Fidelity’s records follows: Interest income on municipal bonds $ 34,400 Depreciation claimed on the 2018 tax return in excess of depreciation on the income statement 58,600 Carrying amount of depreciable assets in excess of their tax basis at year-end 91,000 Warranty expense reported on the income statement 27,800 Actual warranty expenditures in 2018 17,200 Fidelity's income tax rate is 40%. At January 1, 2018, Fidelity's records indicated balances of zero and $12,960 in its deferred tax asset and deferred tax liability accounts, respectively. Required: 1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry. 2. What is Fidelity’s 2018 net income?

Answer 1