Sherrod, Inc., reported pretax accounting income of $62 millionfor 2016. The following information relates to differences betweenpretax accounting income and taxable income:
a. Income from installment sales of properties included in pretaxaccounting income in 2016 exceeded that reported for tax purposesby $7 million. The installment receivable account at year-end had abalance of $8 million (representing portions of 2015 and 2016installment sales), expected to be collected equally in 2017 and2018.
b. Sherrod was assessed a penalty of $4 million by theEnvironmental Protection Agency for violation of a federal law in2016. The fine is to be paid in equal amounts in 2016 and 2017.
c. Sherrod rents its operating facilities but owns one assetacquired in 2015 at a cost of $44 million. Depreciation is reportedby the straight-line method assuming a four-year useful life. Onthe tax return, deductions for depreciation will be more thanstraight-line depreciation the first two years but less thanstraight-line depreciation the next two years ($ in millions):
Income Statement Tax Return Difference 2015 $ 11 $ 14 $ (3 ) 2016 11 20 (9 ) 2017 11 6 5 2018 11 4 7 $ 44 $ 44 $ 0
d. Warranty expense of $5 million is reported in 2016. For taxpurposes, the expense is deducted when costs are incurred, $3million in 2016. At December 31, 2016, the warranty liability was$3 million (after adjusting entries). The balance was $1 million atthe end of 2015.
e. In 2016, Sherrod accrued an expense and related liability forestimated paid future absences of $14 million relating to thecompanyâs new paid vacation program. Future compensation will bedeductible on the tax return when actually paid during the next twoyears ($8 million in 2017; $6 million in 2018).
f. During 2015, accounting income included an estimated loss of $2million from having accrued a loss contingency. The loss is paid in2016 at which time it is tax deductible.
Balances in the deferred tax assetand deferred tax liability accounts at January 1, 2016, were $1.2million and $1.6 million, respectively. The enacted tax rate is 40%each year.
Required:
1. Determine the amounts necessary to record income taxes for 2016and prepare the appropriate journal entry. (If no entry isrequired for an event, select "No journal entry required" in thefirst account field. Enter your answers in millions rounded to 1decimal place (i.e., 5,500,000 should be entered as5.5))
Journal Entry Worksheet
Record 2016 income taxes.
2. What is the 2016 net income? (Enter your answers inmillions rounded to 1 decimal place (i.e., 5,500,000 should beentered as 5.5))
3. Show how any deferred tax amounts should be classified andreported in the 2016 balance sheet. (Enter your answers inmillions rounded to 1 decimal place (i.e., 5,500,000 should beentered as 5.5))
3. Show how any deferred tax amounts should be classified andreported in the 2016 balance sheet. (Enter your answers inmillions rounded to 1 decimal place (i.e., 5,500,000 should beentered as 5.5))
Sherrod, Inc., reported pretax accounting income of $62 millionfor 2016. The following information relates to differences betweenpretax accounting income and taxable income: |
| a. | Income from installment sales of properties included in pretaxaccounting income in 2016 exceeded that reported for tax purposesby $7 million. The installment receivable account at year-end had abalance of $8 million (representing portions of 2015 and 2016installment sales), expected to be collected equally in 2017 and2018. |
| b. | Sherrod was assessed a penalty of $4 million by theEnvironmental Protection Agency for violation of a federal law in2016. The fine is to be paid in equal amounts in 2016 and 2017. |
| c. | Sherrod rents its operating facilities but owns one assetacquired in 2015 at a cost of $44 million. Depreciation is reportedby the straight-line method assuming a four-year useful life. Onthe tax return, deductions for depreciation will be more thanstraight-line depreciation the first two years but less thanstraight-line depreciation the next two years ($ in millions): |
| Income Statement | Tax Return | Difference | |||||||
| 2015 | $ | 11 | $ | 14 | $ | (3 | ) | ||
| 2016 | 11 | 20 | (9 | ) | |||||
| 2017 | 11 | 6 | 5 | ||||||
| 2018 | 11 | 4 | 7 | ||||||
| $ | 44 | $ | 44 | $ | 0 | ||||
| d. | Warranty expense of $5 million is reported in 2016. For taxpurposes, the expense is deducted when costs are incurred, $3million in 2016. At December 31, 2016, the warranty liability was$3 million (after adjusting entries). The balance was $1 million atthe end of 2015. |
| e. | In 2016, Sherrod accrued an expense and related liability forestimated paid future absences of $14 million relating to thecompanyâs new paid vacation program. Future compensation will bedeductible on the tax return when actually paid during the next twoyears ($8 million in 2017; $6 million in 2018). |
| f. | During 2015, accounting income included an estimated loss of $2million from having accrued a loss contingency. The loss is paid in2016 at which time it is tax deductible. |
Balances in the deferred tax assetand deferred tax liability accounts at January 1, 2016, were $1.2million and $1.6 million, respectively. The enacted tax rate is 40%each year. |
| Required: |
| 1. | Determine the amounts necessary to record income taxes for 2016and prepare the appropriate journal entry. (If no entry isrequired for an event, select "No journal entry required" in thefirst account field. Enter your answers in millions rounded to 1decimal place (i.e., 5,500,000 should be entered as5.5)) | ||||||||||
| Journal Entry Worksheet Record 2016 income taxes.
|
Related questions
Sherrod, Inc., reported pretax accounting income of $68 millionfor 2016. The following information relates to differences betweenpretax accounting income and taxable income: |
| a. | Income from installment sales of properties included in pretaxaccounting income in 2016 exceeded that reported for tax purposesby $6 million. The installment receivable account at year-end had abalance of $8 million (representing portions of 2015 and 2016installment sales), expected to be collected equally in 2017 and2018. |
| b. | Sherrod was assessed a penalty of $4 million by theEnvironmental Protection Agency for violation of a federal law in2016. The fine is to be paid in equal amounts in 2016 and 2017. |
| c. | Sherrod rents its operating facilities but owns one assetacquired in 2015 at a cost of $56 million. Depreciation is reportedby the straight-line method assuming a four-year useful life. Onthe tax return, deductions for depreciation will be more thanstraight-line depreciation the first two years but less thanstraight-line depreciation the next two years ($ in millions) |
| . | 2. What is the 2016 net income? (Enter your answers inmillions rounded to 1 decimal place (i.e., 5,500,000 should beentered as 5.5)
|
Sherrod, Inc., reported pretax accounting income of $68 millionfor 2016. The following information relates to differences betweenpretax accounting income and taxable income: |
| a. | Income from installment sales of properties included in pretaxaccounting income in 2016 exceeded that reported for tax purposesby $6 million. The installment receivable account at year-end had abalance of $8 million (representing portions of 2015 and 2016installment sales), expected to be collected equally in 2017 and2018. |
| b. | Sherrod was assessed a penalty of $4 million by theEnvironmental Protection Agency for violation of a federal law in2016. The fine is to be paid in equal amounts in 2016 and 2017. |
| c. | Sherrod rents its operating facilities but owns one assetacquired in 2015 at a cost of $56 million. Depreciation is reportedby the straight-line method assuming a four-year useful life. Onthe tax return, deductions for depreciation will be more thanstraight-line depreciation the first two years but less thanstraight-line depreciation the next two years ($ in millions): |
| Income Statement | Tax Return | Difference | |||||||
| 2015 | $ | 14 | $ | 18 | $ | (4 | ) | ||
| 2016 | 14 | 22 | (8 | ) | |||||
| 2017 | 14 | 8 | 6 | ||||||
| 2018 | 14 | 8 | 6 | ||||||
| $ | 56 | $ | 56 | $ | 0 | ||||
| d. | Warranty expense of $5 million is reported in 2016. For taxpurposes, the expense is deducted when costs are incurred, $4million in 2016. At December 31, 2016, the warranty liability was$4 million (after adjusting entries). The balance was $3 million atthe end of 2015. |
| e. | In 2016, Sherrod accrued an expense and related liability forestimated paid future absences of $14 million relating to thecompanyâs new paid vacation program. Future compensation will bedeductible on the tax return when actually paid during the next twoyears ($8 million in 2017; $6 million in 2018). |
| f. | During 2015, accounting income included an estimated loss of $2million from having accrued a loss contingency. The loss is paid in2016 at which time it is tax deductible. |
| Balances in the deferred tax assetand deferred tax liability accounts at January 1, 2016, were $2.0million and $2.4 million, respectively. The enacted tax rate is 40%each year. 1. Determine the amounts necessary to record income taxes for2016 and prepare the appropriate journal entry. 2. What is the 2016 net income? 3. SHow how any deferred tax amounts should be classified andreported in the 2016 balance sheet. |
Fores Construction Company reported a pretax operating loss of$250 million for financial reporting purposes in 2016. Contributingto the loss were (a) a penalty of $15 million assessed by theEnvironmental Protection Agency for violation of a federal law andpaid in 2016 and (b) an estimated loss of 10 million from accruinga loss contingency. The loss will be tax deductible when paid in2017. The enacted tax rate is 40%. There were no temporarydifferences at the beginning of the year and none originating in2016 other than those described above. Taxable income in Foresâstwo previous years of operation was as follows:
2014- $130 million
2015- 75 million
| Required: |
| 1. | Prepare the journal entry to recognize the income tax benefit ofthe net operating loss in 2016. Fores elects the carryback option.(If no entry is required for a transaction/event, select"No journal entry required" in the first account field. Enter youranswers in millions (i.e., 10,000,000 should be entered as10).) 2. What is the net operating loss reported in 2016income statement (Enter your answers in millions (i.e., 10,000,000should be entered as 10).) 3. Prepare the journal entry to record income taxes in2017 assuming pretax accounting income is $115 million. Noadditional temporary differences originate in 2017. |
