16-7 (Algo) Multiple differences; calculate taxable income; balance sheet classification [LO16-2, 16-3, 16-5, 16-8] Sherrod, Inc., reported pretax accounting income of $92 million for 2021. 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 2021 exceeded that reported for tax purposes by $6 million. The installment receivable account at year-end 2021 had a balance of $8 million (representing portions of 2020 and 2021 installment sales), expected to be collected equally in 2022 and 2023. b. Sherrod was assessed a penalty of $3 million by the Environmental Protection Agency for violation of a federal law in 2021. The fine is to be paid in equal amounts in 2021 and 2022. c. Sherrod rents its operating facilities but owns one asset acquired in 2020 at a cost of $104 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions): Income Statement 2020 $ 26 2021 26 2022 26 2023 26 5104 Difference $ (8) Tax Return $ 34 45 (19) 16 10 2 17 $104 $ 0 d. For tax purposes, warranty expense is deducted when costs are incurred. The balance of the warranty liability was $1 million at the end of 2020. Warranty expense of $3 million is recognized in the income statement in 2021. $2 million of cost is incurred in 2021, and another $3 million of cost anticipated in 2022. At December 31, 2021, the warranty liability is $2 million (after adjusting entries). e. In 2021, Sherrod accrued an expense and related liability for estimated paid future absences of $13 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 ($7 million in 2022; $6 million in 2023). f. During 2020, accounting income included an estimated loss of $6 million from having accrued a loss contingency. The loss is paid in 2021, at which time it is tax deductible. Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2021, were $1.75 million and $2.50 million. respectively. The enacted tax rate is 25% each year. Required: 1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry. 2. What is the 2021 net income? 3. Show how any deferred tax amounts should be classified and reported in the 2021 balance sheet. Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 2 decimal places (1.e., 5,500,000 should be entered as 5.50).) 1 No Event 1 Income tax expense Deferred tax asset Deferred tax liability General Journal Income tax payable Required 1 Required 2 > Debit Credit 23.75 2.00 6.25 19.50 Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the 2021 net income? (Enter your answer in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).) Net income for 2021 $ 68.25 million Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Show how any deferred tax amounts should be classified and reported in the 2021 balance sheet. (Enter your answer in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).) Deferred tax amounts ($ in millions) Classification Amount Net noncurrent deferred tax liability 5.00