You are the new accounting manager at the Barry Transport Company. Your CFO has

Question

You are the new accounting manager at the Barry Transport Company. Your CFO has asked you to provide Input on the company's Income tax position based on the following: 1. Pretax accounting Income was $62 million and taxable Income was $10 million for the year ended December 31, 2016 2 The difference was due to three Items a. Tax depreclation exceeds book depreclation by $50 millon in 2016 for the business complex acqulred that year. This amount is scheduled to be $70 millon In 2017 and to reverse as ($60 milon) and ($60 millon) In 2018, and 2019, respectively. b. Insurance of $6 million was pald In 2016 for 2017 coverage C. A $4 milion loss contingency was accrued In 2016, to be paid In 2018 3.No temporary differences existed at the beginning of 2016 4. The tax rate is 40%. Requlrec 1. Determine the amounts necessary to record Income taxes for 2016 and prepare the appropriate journal entry. (If no entry is required for a transactlon event, select "No Journal entry requlred" In the first account field. Enter your answers In milllons rounded to 1 declmal place (.e., 5,500,000 should be entered as 5.5).) View transaction list Journal entry worksheet Record 2016 income taxes Note: Enter debits before credits Event General Journal Debit Credit

Explanation / Answer

1. . Journal Entry ($ in Million) Date Account Desription , Title Debit Credit 31/12/2016 Tax Expense $25 Deffered Tax Expense $21 Income Tax Payable $4 To Record Income Tax Expense & DTL Created Working note ($in Million) Particular Amount Pretax Accounting Income $62 Taxable Income $10 Tax Rate 40% Tax Depreciation exceded by book Depreciation -$50 Insurance Expense -$6 Contigency Loss $4 Timing Difference -$52 Deferred Tax Liability Createat the End (52*40%) -$20.80 Income Tax Payable as per Taxable income $4.00 2. Classification in Balancesheet Non - Current Liability Deffered Tax Liability $20.80

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