Please Solution with explanation And Do not give solution in image format Sherrod, Incorporated, reported pretax accounting income of $74 million for 2024. The following information relates to differencesbetween pretax accounting income and taxable income:a. Income from installment sales of properties included in pretax accounting income in 2024 exceeded that reported for taxpurposes by $7 million. The installment receivable account at year-end 2024 had a balance of $8 million (representing portionsof 2023 and 2024 installment sales), expected to be collected equally in 2025 and 2026.b. Sherrod was assessed a penalty of $3 million by the Environmental Protection Agency for violation of a federal law in 2024. Thefine is to be paid in equal amounts in 2024 and 2025.c. Sherrod rents its operating facilities but owns one asset acquired in 2023 at a cost of $68 million. Depreciation is reported by thestraight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):2023202420252026IncomeStatement$ 17171717$68Tax Return$ 2229107$ 68Difference$ (5)(12)710$0d. For tax purposes, warranty expense is deducted when costs are paid. The balance of the warranty liability was $1 million at theend of 2023. Warranty expense of $3 million is recognized in the income statement in 2024. $2 million of cost is paid in 2024,and another $3 million of costs are anticipated to be paid in 2025. At December 31, 2024, the warranty liability is $2 million (afteradjusting entries).e. In 2024, Sherrod accrued an expense and related liability for estimated paid future absences of $14 million relating to thecompany's new paid vacation program. Future compensation will be deductible on the tax return when actually paid during thenext two years ($8 million in 2025; $6 million in 2026).f. During 2023, accounting income included an estimated loss of $2 million from having accrued a loss contingency. The loss ispaid in 2024, at which time it is tax deductible.Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2024, were $0.75 million and $1.50 million,respectively. The enacted tax rate is 25% each year.Required:1. Determine the amounts necessary to record income taxes for 2024, and prepare the appropriate journal entry.2. What is the 2024 net income?3. Show how any deferred tax amounts should be classified and reported in the 2024 balance sheet.

Deferred tax assets and liabilities are accounting words that refer to the disparities between how…

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10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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