On January 1, 2013, Ameen Company purchased a building for $38
million. Ameen uses straight-line depreciation for financial
statement reporting and MACRS for income tax reporting. At December
31, 2017, the book value of the building was $32 million and its
tax basis was $22 million. At December 31, 2018, the book value of
the building was $30 million and its tax basis was $15 million.
There were no other temporary differences and no permanent
differences. Pretax accounting income for 2018 was $35
million.
Required:
1. Prepare the appropriate journal entry to record
Ameen’s 2018 income taxes. Assume an income tax rate of 40%.
2. What is Ameen’s 2018 net income?
1) income tax expense a/c. Dr. $14
To deferred tac liabilty a/c . $2
To income tax payble. $12
Explanation:
Current year(2016) | future taxable amount | |
Pretax accounting income | 35 | |
Temporory difference: | ||
Depreciation [(32-22)-(30-15)] | -5 | 15(30-15) |
Taxable income | 30 | |
Tax rate | 40% | 40% |
Tax payble currently | 12 | |
Deffered tax liability | 6 | |
Ending balance(balance currently needed) | 6 | |
Less:begining balance(32-22)×40% | (4) | |
Change needed to achieve desired balance | 2 | |
2) answer: $21 million
Explanation:
Pretax income. = $35
Less: income tax expense = ($14)
Net income . = $21
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