For the year ended December 31, 2018, Fidelity Engineering reported pretax accounting income of $977,000. Selected information for 2018 from Fidelity's records follows:

Interest income on municipal bonds...........................................................$32,000

Depreciation claimed on the 2018 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 2018.........................................................16,000

Fidelity's income tax rate is 40%. At January 1, 2018, 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 2018, and prepare the appropriate journal entry.

2. What is Fidelity's 2018 net income?