On January 1, 2013, Ameen Company purchased a building for $42 million. Ameen us

Question

On January 1, 2013, Ameen Company purchased a building for $42 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 $36 million and its tax basis was $26 million. At December 31, 2018, the book value of the building was $34 million and its tax basis was $19 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2018 was $50 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

Income tax expense 20 Deferred tax liability 2 Income tax payable 16 Explanation Current Year Future taxable Amount Pretax accounting Income 50 Temporary Difference (36-26)-(34-19) Dep( -5 15 Taxable Income (Tax Return) 45 Enacted tax Rate 40% 40% Tax Payable Currently 18 6 Deferred tax liability Ending balance (balance currently needed) 6 Less: beginning balance ($36 – 26) × 40% -4 Change needed to achieve desired balance 2 2 Pretax income 50 Income Tax Expense (18+2) 20 Net Income 30

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