On January 1, 2013, Ameen Company purchased a building for $52 million. Ameen us

Question

On January 1, 2013, Ameen Company purchased a building for $52 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2017, the book value of the building was $46 million and its tax basis was $36 million. At December 31, 2018, the book value of the building was $44 million and its tax basis was $29 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2018 was $45 million.

Required:
1. Prepare the appropriate journal entry to record Ameen’s 2018 income taxes. Assume an income tax rate of 40%.
2. What is Ameen’s 2018 net income?

Explanation / Answer

1 Income tax expense 18 =45*40%        Deferred tax liability 2 =(36-29)-(46-44)*40%        Income tax payable 16 2 Ameen’s 2018 net income = 45-18 = $27 million

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