Problem $1$

$(18$ points$)$

Ray Signs Inc.$\text{'}$s pretax accounting income was $$60$ million for the year ended December $31,2024.$ The difference was due to three items:

Tax depreciation exceeds book depreciation by $$30$ million in $2024$ for the assets acquired that year. Tax depreciation will exceed book depreciation by $$50$ million in $2025$ and to reverse as $($ $$40$ million$)$ and $($ $$40$ million$)$ in $2026$ and $2027,$ respectively.

Insurance of $$10$ million was paid in $2024$ for $2025$ coverage.

A $$6$ million loss contingency was accrued in $2024,$ to be paid in $2026.$

No temporary differences existed at the beginning of $2024.$ The tax rate is $25\%.$

a$.$ Determine the amounts necessary to record income taxes for $2024$ and prepare the appropriate journal entry. $(8$ points$)$

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Workings:

b$.$ During $2025$ a new tax law is enacted that causes the tax rate to change from $25\%$ to $20\%$ starting in $2026.$ Ray Signs' pretax accounting income for $2025$ was $$102$ million. There were no differences between accounting income and taxable income other than those described above.

Determine the amounts necessary to record income taxes for $2025$ and prepare the appropriate journal entry$/$entries$.(8$ points$)$

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c$.$ Assuming Ray Signs will show a single noncurrent net amount in its December $31,2025$ balance sheet, indicate that amount and whether it is a net deferred tax asset or liability. $(2$ points$)$