Question

The information that follows pertains to Richards Refrigeration, Inc.:

1. At December 31, 2018, temporary differences existed between the financial statement carrying amounts and the tax bases of the following:

	($ in millions)
	Carrying Amount			Tax Basis			Future Taxable (Deductible) Amount
Buildings and equipment (net of accumulated depreciation)	$	120		$	90			$	30
Prepaid insurance		50			0				50
Liability—loss contingency		25			0				(25	)

2. No temporary differences existed at the beginning of 2018.
3. Pretax accounting income was $200 million and taxable income was $145 million for the year ended December 31, 2018. The tax rate is 40%.

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?
  

Answer 1

Ques 1
Income tax expense (to balance)	80
Deferred tax asset ($25 million x 40%)	10
Deferred tax liability ($80 million x 40%)		32
Income tax payable ($145 million x 40%)		58
Ques 2
Pretax income	$   200
Income tax expense	$   (80)
Net Income	$   120