Question

On January 1, 2013, Ameen Company purchased a building for $76 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 $70 million and its tax basis was $60 million. At December 31, 2018, the book value of the building was $68 million and its tax basis was $53 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2018 was $55 million. Requirement:

Prepare the appropriate journal entry to record Ameen’s 2016 income taxes. Assume an income tax rate was 40%

What is Ameen’s 2016 net income?

Answer 1

Answer: This can be solved as follows :-

Explanation:

1. Journal entry :-

Income tax expense A/c Dr. $22M

To deferred tax liability $10M

To income tax payable $12M

working notes :-

Income tax expense = $55M * 40% = 22M

Deferred tax liability = ($70M - $60M - $53M + $68M)* 40% = $10M

Income tax payable = $12M

2. Ameen's net income = $55M - $22M = $33M