Concept explainers
Multiple differences; calculate taxable income;
• LO16–4, LO16–6, LO16–8
Sherrod, Inc., reported pretax accounting income of $76 million for 2018. 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 2018 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end had a balance of $4 million (representing portions of 2017 and 2018 installment sales), expected to be collected equally in 2019 and 2020.
b. Sherrod was assessed a penalty of $2 million by the Environmental Protection Agency for violation of a federal law in 2018. The fine is to be paid in equal amounts in 2018 and 2019.
c. Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $80 million.
d. Warranty expense of $3 million is reported in 2018. For tax purposes, the expense is deducted when costs are incurred, $2 million in 2018. At December 31, 2018, the warranty liability was $2 million (after
e. In 2018, Sherrod accrued an expense and related liability for estimated paid future absences of $7 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($4 million in 2019; $3 million in 2020).
f. During 2017, accounting income included an estimated loss of $2 million from having accrued a loss contingency. The loss is paid in 2018, at which time it is tax deductible.
Balances in the
Required:
1. Determine the amounts necessary to record income taxes for 2018, and prepare the appropriate
2. What is the 2018 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet.
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Chapter 16 Solutions
Intermediate Accounting
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- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning