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Ajax Inc. projects pretax income in 2013, 2014, and 2015 of $71M, $80M, and $80M, respectively. In 2013, an asset was acquired for $60M to
Ajax Inc. projects pretax income in 2013, 2014, and 2015 of $71M, $80M, and $80M, respectively. In 2013, an asset was acquired for $60M to be depreciated S/L with no salvage value for financial reporting and deducted for tax purposes over 2013-15 as follows: $35M, $15M, and $10M. In addition, the 2013 income statement includes a $9M warranty expense that is deducted for tax purposes when paid in 2013-15 at $3M each year. Ajax has an income tax rate of 20%. a. Prepare journal entry at the end of 2013 to account for income tax; b. Prepare journal entry at the end of 2014 to account for income tax. ($ in millions) Pretax accounting income Depreciation on income statement Depreciation on tax return Warranty expense on income statement Warranty expense on tax return Taxable income (tax return) Temporary Differences Originates Reverses 2013 2014 2015 $ 71 $ 80$ 80 $ 20 20 20 (35) (15) (10) 9 (3) (3) (3) S 62 S 82 $ 87 $ Total 231 60 (60) 9 (9) 231
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