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 Carrying Tax Amount Basis $134 $97 illions) Future Taxable Deductible) Amount $ 37 Buildings and equipment (net of accumulated depreciation) Prepaid insurance Liability-loss contingency (32) b. No temporary differences existed at the beginning of 2018 c. Pretax accounting income was $207 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

Solution 1:

Particulars	Amount (In millions)	Rate of Tax	Tax (In millions)	Recorded as
Pretax accounting income	$207.00
Permanent difference	$0.00
Income subject to taxation	$207.00	40%	$82.80	Income tax expense
Temporary differences:
Depreciation	-$37.00	40%	-$14.80	Deferred tax liability
Prepaid insurance	-$57.00	40%	-$22.80	Deferred tax liability
Liability - Loss contigency	$32.00	40%	$12.80	Deferred tax assets
Income taxable in current year	$145.00	40%	$58.00	Income Tax Payable

Journal Entries
Date	Particulars	Debit (In million)	Credit (In million)
31-Dec-18	Income tax expense Dr	$82.80
	Deferred tax assets Dr	$12.80
	To Income taxes payable		$58.00
	To Deferred tax liability		$37.60
	(To record income tax expense)

Solution 2:

Net income = Pretax income - Income tax expense = $207 - $82.80 = $124.20 million