Reference no: EM132887560

Questions -

I. Pretax accounting income was $41 million for the year ended December 31, 2018.

Your CFO has asked you to provide input on the company's income tax position based on the following:

2. Tax depreciation exceeds book depreciation by $30 million in 2018 for the business complex acquired that year. This amount is scheduled to be $60 million in 2019 and to reverse as ($50 million) and ($40 million) in 2020 and 2021, respectively.

3. Insurance of $9 million was paid in 2018 for 2019 coverage.

4. A $6 million loss contingency was accrued in 2018, to be paid in 2020.

No temporary differences existed at the beginning of 2018. The tax rate is 40%.

Required -

1) Determine the taxable for 2018.

2) Prepare the appropriate journal entry for 2018.

3) What is the 2018 net income?

II. Gallo Light began operations in 2018. The company sometimes sells used warehouses on an installment basis. In those cases, Gallo Light reports income in its income statement in the year of the sale. In its income tax return, though, Gallo Light reports installment income by the installment method. Installment income in 2018 was $90,000, which Gallo Light expects to collect equally over the next three years. The tax rate is 30%, but based on an enacted law, is scheduled to become 35% in 2020.

Gallo Light's pretax accounting income from the 2018 income statement was $830,000, which includes $40,000 of interest revenue from an investment in municipal bonds. There were no differences between accounting income and taxable income other than those described above.

1) Prepare the appropriate journal entry to record Gallo Light's 2018 income taxes. Show calculations.

2) What is Gallo Light's 2018 net income?