Sherrod, Inc., reported pretax accounting income of $90 million for 2021. The following information relates to difference
Fantastic news! We've Found the answer you've been seeking!
Question:
Sherrod, Inc., reported pretax accounting income of $90 million for 2021. The following information relates to difference pretax accounting income and taxable income:
Transcribed Image Text:
a. Income from installment sales of properties included in pretax accounting income in 2021 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end 2021 had a balance of $4 million (representing portions of 2020 and 2021 installment sales), expected to be collected equally in 2022 and 2023. b. Sherrod was assessed a penalty of S2 million by the Environmental Protection Agency for violation of a federal law in 2021. The fine is to be paid in equal amounts in 2021 and 2022. c. Sherrod rents its operating facilities but owns one asset acquired in 2020 at a cost of $100 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than stralght-line depreciation the next two years ($ in millions): Income Statement $ 25 Difference $ (6) (18) Tax Return 2020 $ 33 2021 25 43 2022 25 15 10 2023 25 9 16 $100 $ 100 d. For tax purposes, warranty expense is deducted when costs are incurred. The balance of the warranty liability was $1 million at the end of 2020. Warranty expense of S5 million is recognized in the income statement in 2021. S3 million of cost is incurred in 2021, and another $3 million of cost anticipated in 2022. At December 31, 2021, the warranty liability is $3 million (after adjusting entries). e. In 2021, Sherrod accrued an expense and related liability for estimated paid future absences of $10 million relating to the company's new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($7 million in 2022; $3 million in 2023). f. During 2020, accounting income included an estimated loss of $4 million from having accrued a loss contingency. The loss is paid in 2021, at which time it is tax deductible. Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2021, were $1.3 million and $2.3 million, respectively. The enacted tax rate is 25% each year. Required: 1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry. 2. What is the 2021 net income? 3. Show how any deferred tax amounts should be classified and reported in the 2021 balance sheet. a. Income from installment sales of properties included in pretax accounting income in 2021 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end 2021 had a balance of $4 million (representing portions of 2020 and 2021 installment sales), expected to be collected equally in 2022 and 2023. b. Sherrod was assessed a penalty of S2 million by the Environmental Protection Agency for violation of a federal law in 2021. The fine is to be paid in equal amounts in 2021 and 2022. c. Sherrod rents its operating facilities but owns one asset acquired in 2020 at a cost of $100 million. Depreciation is reported by the straight-line method, assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than stralght-line depreciation the next two years ($ in millions): Income Statement $ 25 Difference $ (6) (18) Tax Return 2020 $ 33 2021 25 43 2022 25 15 10 2023 25 9 16 $100 $ 100 d. For tax purposes, warranty expense is deducted when costs are incurred. The balance of the warranty liability was $1 million at the end of 2020. Warranty expense of S5 million is recognized in the income statement in 2021. S3 million of cost is incurred in 2021, and another $3 million of cost anticipated in 2022. At December 31, 2021, the warranty liability is $3 million (after adjusting entries). e. In 2021, Sherrod accrued an expense and related liability for estimated paid future absences of $10 million relating to the company's new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($7 million in 2022; $3 million in 2023). f. During 2020, accounting income included an estimated loss of $4 million from having accrued a loss contingency. The loss is paid in 2021, at which time it is tax deductible. Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2021, were $1.3 million and $2.3 million, respectively. The enacted tax rate is 25% each year. Required: 1. Determine the amounts necessary to record income taxes for 2021, and prepare the appropriate journal entry. 2. What is the 2021 net income? 3. Show how any deferred tax amounts should be classified and reported in the 2021 balance sheet.
Expert Answer:
Related Book For
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott
Posted Date:
Students also viewed these accounting questions
-
In 2020, Sarasota Inc. reported pretax accounting income of $132,600. In 2021, the company had a pretax accounting income of $57,700. In 2022, the company had pretax losses of $209,800. The following...
-
Sherrod, Inc., reported pretax accounting income of $80 million for 2021. The following information relates to differences between pretax accounting income and taxable income: a. Income from...
-
Show how the following mass motion equation is derived, and then solve for displacement. www. Mass-spring-damper system The mass motion is described by the differential equation: where: x + 2z. k =...
-
Find the absolute maximum and absolute minimum values of f on the given interval. f(x) = x 3 6x 2 + 5, [3, 5]
-
In the WSClock algorithm of Fig. 3-20(c), the hand points to a page with R = 0. If = 400, will this page be removed? What about if = 1000?
-
1) Find the inverse demand function 2) Set up profit function 3) Find P* AND Q* 4) Find/ ID MR, MC, ATC, AR, Functions. 5) Plot MR, MC, ATC, AR, 6) Find 7) Find mark up 8) Find Ep Q=200-1/2p TC= Q^2
-
Suppose there is a stock and a bond governed by the equations It is desired to construct a portfolio of these two securities that gives the maximum expected \(\log\) of return. However, although...
-
The following events apply to Pearson Service Co. for 2018, its first year of operation: 1. Received cash of $50,000 from the issue of common stock. 2. Performed $90,000 worth of services on account....
-
Zama CC acquired Machine A ( a second - hand machine ) for R 2 0 0 0 0 0 0 and brought it into use in its manufacturing process on 1 0 January 2 0 1 7 . Zama CC acquired a new manufacturing machine B...
-
The post-closing trial balance for Heron Consulting Services, inc, at December 31 of the prior year is presented here. The company respond the following transactions during the current year: January...
-
The P-Q data below were obtained from the manufacturer's static pressure curve for a fan operating at 750 rpm and a density of 1.2 kg/m. a- Draw the fan characteristic curve for a fan operating at...
-
Each of these individuals would like to report the sale of their property on the installment method. Which taxpayer is eligible to do so? No selling expenses were associated with any of the...
-
Consider the famous speech of John F. Kennedy, the US president delivered near the Berlin Wall, Berlin on June 26, 1963: He stated 'Ich bin ein Berliner' (translation: I am Berliner). He used German...
-
Compute the FOBV [ fixed overhead budget variance ] Given Data : Standard rate for FOH = $ 4 per DLH Actual DLHs worked = 4 1 , 0 0 0 DLHs Denominator hours = 4 0 , 0 0 0 DLHs Actual production...
-
Kubin Company s relevant range of production is 1 8 , 0 0 0 to 2 2 , 0 0 0 units. When it produces and sells 2 0 , 0 0 0 units, its average costs per unit are as follows: Average Cost per Unit...
-
Bending moments of My = -70 Nm and Mz = -10 Nm are applied on the idealized thin-walled 4 booms wing beam section shown in Figure 2. Determine the axial stresses in all booms. 100mm z' X 50mm 2 MP =...
-
What information do you gain when you attend an annual conference of either the Mississippi Association of School Administrators, the Mississippi Association of High School Principals, the...
-
A local politician is concerned that a program for the homeless in her city is discriminating against blacks and other minorities. The following data were taken from a random sample of black and...
-
You work for Euroc, a limited liability company, which seeks growth through acquisitions. You are a member of a team that is investigating the possible purchase of Choggerell, a limited liability...
-
The statements of financial position of Radar plc at 30 September were as follows: The following information is available: (i) An impairment review of the investments disclosed that there had been an...
-
The brands debate Under IAS 22, the depletion of equity reserves caused by the accounting treatment for purchased goodwill resulted in some companies capitalising brands on their statements of...
-
Figure 4.11 shows the \(v_{x}(t)\) curves for a collision between two identical carts moving not on a low-friction track but rather on a rough surface, so that friction affects their motion. Are the...
-
(a) Classify and give examples of the kinds of processes that can change (i) the number of loaves of bread in a bakery, (ii) the number of Lego pieces inside a house, and (iii) the number of coins in...
-
Cite at least two possible choices of system in each of the following situations. For each choice, make a sketch showing the system boundary and state which objects (excluding air) are inside the...
Study smarter with the SolutionInn App