For the year ended December 31, 2013, Fidelity Engineering reported pretax accounting income of $977,000.

Selected information for 2013 from Fidelity’s records follows:

Interest income on municipal bonds $32,000

Depreciation claimed on the 2013 tax return in excess of depreciation on the income statement 55,000

Carrying amount of depreciable assets in excess of their tax basis at year-end 85,000

Warranty expense reported on the income statement 26,000

Actual warranty expenditures in 2013 16,000

Fidelity’s income tax rate is 40%. At January 1, 2013, Fidelity’s records indicated balances of zero and

$12,000 in its deferred tax asset and deferred tax liability accounts, respectively.

Required:

1. Determine the amounts necessary to record income taxes for 2013 and prepare the appropriate journal entry.

2. What is Fidelity’s 2013 net income?