Answer:
Answer for the question:
On January 1, 2018, Ameen Company purchased major pieces of manufacturing equipment for a total of $54 million. Ameen uses straight-line depreciation for financial statement reporting and deducted 100% of the equipment’s cost for income tax reporting in 2018. At December 31, 2020, the book value of the equipment was $48 million. At December 31, 2021, the book value of the equipment was $40 million. There were no other temporary differences and no permanent differences. Pretax accounting income for 2021 was $68 million. Required: 1. Prepare the appropriate journal entry to record Ameen’s 2021 income taxes. Assume an income tax rate of 25%. 2. What is Ameen’s 2021 net income?
Is given in the attachment.
Explanation:
Net Income is calculated by deducting the entity's expenses from the income of the entity. The net income of Ameen is $51 Million for 2021.
What is Net Income?
In business and accounting, net income is the income of an entity minus the cost of goods sold, costs, depreciation and deductions, interest, and taxes for the calculation period.
As per the given information, appropriate journal entries to record Ameen's 2021 income taxes are shown in the image attached.
Calculation of income tax payable:
[tex]\rm\,Taxable\,Income\,for \,2021 \\= Pre\,tax\,Accounting\,Income + [Excess\,of \,Book\,Depreciation\,over\,Tax\ Depreciation][/tex]
[tex]\rm\,Taxable\,Income\,for \,2021 = \$68+ [(\$48 - \$40) - 0]\\\\\rm\,Taxable\,Income\,for \,2021 = \$76\, Million\\\\Income-Tax \,Payable = \$76 \times 25\%\\\\Income-Tax \, Payable = \$19 \,Million\\[/tex]
Deferred Tax liability is equal to $8 Million multiplied by 25 percent is $2 Million.
[tex](\rm\, \$48 - \$40\, Million)[/tex]
Ameen's 2021 Net Income is calculated below:
[tex]\rm\, Net\, Income \,of \,Ameen = Pre-Income\, tax - Income\, Tax\, Expense\\\\\rm\, Net\, Income \,of \,Ameen = \$68 - \$17\\\\rm\, Net\, Income \,of \,Ameen = \$51\,Million[/tex]
Hence, the net income of Ameen is $51 Million. The journal entries for the income tax payable are shown in the image attached.
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