Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Sherrod, Inc., reported pretax accounting income of $92 million for 2016. The following information relates to differences between pretax accounting income and taxable income a.
Sherrod, Inc., reported pretax accounting income of $92 million for 2016. 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 2016 exceeded that reported for tax purposes by S6 milion. The installment receivable account at year-end had a balance of $8 million representing portions of 2015 and 2016 installment sales), expected to be collected equally in 2017 and 2018 b. Sherrod was assessed a penalty of S3 million by the Environmental Protection Agency for violation of a federal law in 2016. The fine is to be paid in equal amounts in 2016 and 2017. c. Sherrod rents its operating facilities but owns one asset acquired in 2015 at a cost of S 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 (S in millions) Income Statement Tax Return Difference 2015 26 34 S (8 2016 26 45 19 2017 26 16 10 2018 26 17 $104 $104 0 d. Warranty expense of S3 million is reported in 2016. For tax purposes, the expense is deducted when costs are incurred, $2 mi in 2016. At December 31, 2016, the warrant ty liability was $2 m ion (afte adjusting entries The balance was $1 million at the end of 2015 e. In 2016, Sherrod accrued an expense and related liability for estimated paid future absences of S13 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 (S7 million in 2017; S6 million in 2018 f. During 2015, accounting income included an estimated loss of $6 million from having accrued a loss contingency. The loss is paid in 2016 at which time it is tax deductible Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2016, were S2.8 million and S4.0 million, respectively. The enacted tax rate is 40% each year. Required 1. Determine the amounts necessary to record income taxes for 2016 and prepare the appropriate journal entry. (If no entry is required for an event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place e., 5,500,000 should be entered as 5.5) transaction st view transa Journal E 1. Record 2016 income taxes journal entry has been entered Recorc Debit Credit Event General Journa 1 Income tax expense
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started