2.For the year ended December 31, 2018, Fidelity Engineering reported pretax accounting income of $977,000. Selected information for 2018 from Fidelitys records follows:

Interest income on municipal bonds $32,000

Depreciation claimed on the 2018 tax return in excess of depreciation on the income statement 55,000

Carrying amount of depreciable assets in excess of their tax basis at year-end 85,000

Warranty expense reported on the income statement 26,000

Actual warranty expenditures in 2018 16,000

Fidelitys income tax rate is 40%. At January 1, 2018, Fidelitys records indicated balances of zero and $12,000 in its deferred tax asset and deferred tax liability accounts, respectively.

Required:

1. Determine the amounts necessary to record income taxes for 2018, and prepare the appropriate journal entry.

2. What is Fidelitys 2018 net income?