You assumed the role of accounting manager at Big Fish Industries. Your CFO has asked you to provide input on the company’s income tax position based on the following:

1. Pretax accounting income was $61 million for the year ended December 31, 2018, $75 million for the year ended December 31, 2019, and $52 million for the year ended December 31, 2020.
2. The differences between pretax income and taxable income relate to the following items:
   1. 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.
   2. Company general insurance coverages are typically paid in the year prior to usage. This policy began in 2018. Thus the 2020 insurance coverage is paid for in 2019. Amounts paid during each year are as follows:
      1. 2018- $16 million ($6 million for 2018 coverage and $10 million for 2019 coverage)
      2. 2019- $9 million for 2020 coverage
      3. 2020- $11 million for 2021 coverage
   3. A $6 million loss contingency was accrued in 2018, to be paid in 2019.
3. No temporary differences existed at the company prior to these years besides the items that are addressed above.
4. The currently enacted tax rate is 20%

Required:

• Determine taxable income for 2018, 2019 and 2020
• Prepare the appropriate journal entry to record income tax expense for these three years

Answer rating: 100% (QA)

Deferred Tax Liability Asset Few expenses or income disallowed for tax basis of accounting as compar... View the full answer