Journal entry to record southern tax expense

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Several years ago, Southern Corporation purchased a fixed asset for $20 million. At 12-31-09, the carrying value (cost minus accumulated depreciation for financial reporting purposes) of the asset was $17 million and its tax basis (cost minus accumulated depreciation for tax purposes) was $12 million. On 12-31-10, the carrying value was $16 million and the tax basis was $9 million. There were no other temporary differences besides depreciation. Southern's pretax financial income was $25 million including $1 million in municipal bond interest. Southern is subject to a 20% tax rate.

(a) Prepare the journal entry to record Southern's tax expense for 2010.

(b) Calculate Southern's net after tax income for 2010.

Reference no: EM13134085

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