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On January 1, 2013, Ameen Company purchased a building for $36 million. Ameen uses straight-line depreciation for financial statement reporting and MACRS for income tax reporting. At December 31, 2015, the book value of the building was $30 million and its tax basis was $20 million. At December 31, 2016, the book value of the building was $28 million and its tax basis was $13 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2016 was $45 million.

Required:
Prepare the appropriate journal entry to record Ameen's 2016 income taxes. Assume an income tax rate of 40%.

Respuesta :

TomShelby

Answer:

income tax expense 18,000,000 debit

defferred income tax-liability   2,000,000 credit

income tax payable                 16,000,000 credit

Explanation:

the building was depreciate by 2 millon by the company

(30 millon beginning less 28 million ending = 2 depreciation )

Then, for tax purposes it was depreciate for 7 million

(20 beginning  less 13 ending = 7 million depreciation)

The tax temporary difference is for 5 million

We will apply the tax rate to it and solve for the tax liability (as in the future we will keep doing a depreciation expense but will not be deductible as the tax basis of the building reach zero already)

5,000,000 x 40% = 2,000,000 tax laibility

45,000,000 - 5,000,000 = 40,000,000 taxable income

40,000,000 x 40% = 16,000,000 income tax payable

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