Problem 16-7 Multiple differences; calculate taxable income; balance sheet classification [L016-4, 16-6, 16-8 Sherrod, Inc., reported pretax accounting income of $74 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 $7 million. The installment receivable account at year-end had a balance of $8 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 $3 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. Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $68 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions) statement Tax Return Difference s (5) (12) s 22 29 10 2017 2018 2019 2020 s 17 17 17 68 68 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 adjusting entries). The balance was $1 million at the end of 2017 e. In 2018 Sherrod accrued n exnense and related liabilitv for estimated naid future absences of $14 million relat na to the crnmnanv's depreciation the first two years but less than straight-line depreciation the next two years (S in millions);: Difference s (5) (12) Income StatementTax Return $ 22 29 10 2017 2018 2019 2020 s 17 17 17 17 $ 68 10 68 d. Warranty expense of $3 million is reported in 2018. For tax purposes, the expense is deducted when costs are incurred, $2 million e. In 2018, Sherrod accrued an expense and related liability for estimated paid future absences of $14 million relating to the company's f. During 2017, accounting income included an estimated loss of $2 million from having accrued a loss contingency. The loss is paid in in 2018. At December 31, 2018, the warranty liability was $2 million (after adjusting entries). The balance was $1 million at the end of 2017 new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($8 million in 2019; $6 million in 2020). 2018 at which time it is tax deductible. Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2018, were $1.2 million and $2.4 million, respectively. The enacted tax rate is 40% each year. Required 1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry 2. What is the 2018 net income? 3. Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet. Required 1 Required 2 Required3 Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate jour a transaction/event, select "No journal entry required" in the first account field. Enter your answers place (i.e., 5,500,000 should be entered as 5.5).) View transaction list Journal entry worksheet Record 2018 income taxes Note: Enter debits before credits. Credit Event Debit General Journal respectively. I he enacted tax rate is 40% each year. Required: 1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropr 2. What is the 2018 net income? 3. Show how any deferred tax amounts should be classified and reported in the 2018 balance Complete this question by entering your answers in the tabs below. Required 1 Required 2Requires 3 Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet. millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) Deferred tax amounts (S in millions) Amount Classification Required 2 Required 3>