Sherrod, Incorporated, reported pretax accounting income of $84 million for 2024. The following information relates to differences between pretax accounting income and taxable income: a. Income from installment sales of properties included in pretax accounting income in 2024 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end 2024 had a balance of $4 million (representing portions of 2023 and 2024 installment sales), expected to be collected equally in 2025 and 2026. b. Sherrod was assessed a penalty of $4 million by the Environmental Protection Agency for violation of a federal law in 2024. The fine 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 $88 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight- line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions): 2023 2024 2025 2026 Income Statement $ 22 22 22 22 $ 88 Tax Return $29 36 13 10 $88 Difference $ (7) (14) 9 12 d. For tax purposes, warranty expense is deducted when costs are paid. The balance of the warranty liability was $1 million at the
Sherrod, Incorporated, reported pretax accounting income of $84 million for 2024. The following information relates to differences between pretax accounting income and taxable income: a. Income from installment sales of properties included in pretax accounting income in 2024 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end 2024 had a balance of $4 million (representing portions of 2023 and 2024 installment sales), expected to be collected equally in 2025 and 2026. b. Sherrod was assessed a penalty of $4 million by the Environmental Protection Agency for violation of a federal law in 2024. The fine 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 $88 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight- line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions): 2023 2024 2025 2026 Income Statement $ 22 22 22 22 $ 88 Tax Return $29 36 13 10 $88 Difference $ (7) (14) 9 12 d. For tax purposes, warranty expense is deducted when costs are paid. The balance of the warranty liability was $1 million at the
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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