Allmond Corporation, organized on January 3, 2018, had pretax accounting income
ID: 2518903 • Letter: A
Question
Allmond Corporation, organized on January 3, 2018, had pretax accounting income of $15 million and taxable income of $23 million for the year ended December 31, 2018. The 2018 tax rate is 40%. The only difference between accounting income and taxable income is estimated product warranty costs. Expected payments and scheduled tax rates (based on recent tax legislation) are as follows:
Required:
1. Determine the amounts necessary to record Allmond’s income taxes for 2018 and prepare the appropriate journal entry.
Determine the amounts necessary to record Allmond’s income taxes for 2018. (Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5). Enter all amounts as positive values.)
Record 2018 income taxes.
2. What is Allmond’s 2018 net income?
2019 $ 3 million 30 % 2020 1 million 30 % 2021 2 million 30 % 2022 2 million 25 %Explanation / Answer
($ in millions)
Tax Rate %
Tax $
Recorded As:
Pretax accounting income
$15.0
Warranty costs reversing in:
2019
$3.0
X
30%
=
$0.9
2020
$1.0
X
30%
=
$0.3
2021
$2.0
X
30%
=
$0.6
2022
$2.0
x
25%
=
$0.5
Total deferred tax amount
$2.3
Deferred tax asset
Income taxable in current year
$23
x
40%
=
$9.2
Income tax payable
General Journal
Debit
Credit
Income tax expense
6.9
Deferred tax asset
2.3
Income tax payable
9.2
b. Net Income = $2.3 + $9.2 = $11.5
($ in millions)
Tax Rate %
Tax $
Recorded As:
Pretax accounting income
$15.0
Warranty costs reversing in:
2019
$3.0
X
30%
=
$0.9
2020
$1.0
X
30%
=
$0.3
2021
$2.0
X
30%
=
$0.6
2022
$2.0
x
25%
=
$0.5
Total deferred tax amount
$2.3
Deferred tax asset
Income taxable in current year
$23
x
40%
=
$9.2
Income tax payable
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