Question

For the year ended December 31, 2018, Fidelity Engineering reported pretax accounting income of $990,000. Selected information for 2018 from Fidelity’s records follows:

Interest income on municipal bonds	$	34,600
Depreciation claimed on the 2018 tax return in excess of depreciation on the income statement		58,900
Carrying amount of depreciable assets in excess of their tax basis at year-end		91,500
Warranty expense reported on the income statement		27,950
Actual warranty expenditures in 2018		17,300

Fidelity's income tax rate is 40%. At January 1, 2018, Fidelity's records indicated balances of zero and $13,040 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.

Determine the amounts necessary to record income taxes for 2018. (Enter your answers in thousands rounded to two decimal places (i.e. 1,230 should be entered as 1.23). Amounts to be deducted should be indicated with a minus sign.)

			Tax Rate %		Tax $	Recorded as:
Pretax accounting income	$990.00
Permanent difference
Income subject to taxation		x
Temporary difference
		x		=
Taxable income (income tax return)		x		=

2. Record Income taxes

3. What is Fidelity’s 2018 net income?

Answer 1