Question

On January 1, 2013, Ameen Company purchased a building for $40 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2017, the book value of the building was $34 million and its tax basis was $24 million. At December 31, 2018, the book value of the building was $32 million and its tax basis was $17 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2018 was $30 million.

Required:
1. Prepare the appropriate journal entry to record Ameen’s 2018 income taxes. Assume an income tax rate of 40%.
2. What is Ameen’s 2018 net income?

Answer 1

Solution:
1.)

Date	Particulars	Debit ($)	Credit ($)
2018	Income tax expense ($30 million*40%)	$12 Million
	Deferred tax liability ($24 - $17)-($34-$32)*40%		$2 Million
	Income tax payable		$10 Million
	(To record income tax expense for the year 2018)

2.)
Ameen's 2018 Net Income = $30 Million - $12 Million = $18 Million