Answer:
$15.75 million
Explanation:
The Income tax necessary to record in almond's income taxes for 2021 can be calculated by reversing all the warranty cost in 2022 and onwards. The warranty cost will be recorded as a deferred tax asset.
Requirement A
Warranty costs reversing in:
Date Amount Tax rate Tax
2022 $4m x 30% = $1.2 Deferred tax Assets
2023 $1m x 30% = $0.3 Deferred tax Assets
2024 $1m x 30% = $0.3 Deferred tax Assets
2025 $2m x 25% = $0.5 Deferred tax Assets
Total deferred tax amount $2.3 Deferred tax Assets
Income tax Payable = Taxabe income x tax rate
Income tax Payable = $29m x 25%
Income tax Payable = $7.25m
Accounting Entry:
DEBIT CREDIT
Income tax expense $7.25
Deferred tax asset $2.3
Income taxes payable $9.55
Requirement B
Net income for 2021 = Pretax income - Income tax expense
Net income for 2021 = $23M - $7.25
Net income for 2021 = $15.75 million
