Question

Allmond Corporation, organized on January 3, 2021, had pretax accounting income of $15 million and taxable income of $23 million for the year ended December 31, 2021. The 2021 tax rate is 25%. The only difference between accounting income and taxable income is estimated product warranty costs. Assume that expected payments and scheduled tax rates (based on recently enacted tax legislation) are as follows:

2022	$	3 million	30	%
2023		1 million	30	%
2024		2 million	30	%
2025		2 million	25	%

Required:
1. Determine the amounts necessary to record Allmond’s income taxes for 2021 and prepare the appropriate journal entry.
2. What is Allmond’s 2021 net income?
  

Answer 1

Part-1

Computation of Amount Payable for Income Tax

Taxable Income = $23 Million

Tax Rate = 25%

Income Tax ( 23 MillionX 25%)= $5.75 Million

Journal Entry- Allmond Corporation - in million
Account Tittle	Debit	Credit
Income Tax expense (Bf)	$3.45
Deferred Tax Asset (w/ Note)	$2.30
Income Tax Payable		$5.75

W/Note:- Computation of Deferred Tax
	2022	2023	2024	2025	Total
Temporary Difference ( in Million)	$3.00	$1.00	$2.00	$2.00	$8.00
Tax Rate	30%	30%	30%	25%
Deferred Tax	$0.90	$0.30	$0.60	$0.50	$2.30

part-2: Computation of Net Income - in million
Account Tittle	Debit	Credit
Pre Tax Accounting Income		$15.00
Income Tax Expense
Current Tax	$5.75
Deferred Tax	-$2.30	$3.45
Net Income after tax		$11.55