Chapter 16, Problem 16.14E

Multiple differences

• LO16–4, LO16–6

For the year ended December 31, 2018, Fidelity Engineering reported pretax accounting income of $977,000. Selected information for 2018 from Fidelity’s records follows:

Interest income on municipal bonds	$32,000
Depreciation claimed on the 2018 tax return in excess of depreciation on the income statement	55,000
Carrying amount of depreciable assets in excess of their tax basis at year-end	85,000
Warranty expense reported on the income statement	26,000
Actual warranty expenditures in 2018	16,000

Fidelity’s income tax rate is 40%. At January 1, 2018, Fidelity’s records indicated balances of zero and $12,000 in its deferred tax asset and deferred tax liability accounts, respectively.

Required:

1. Determine the amounts necessary to record income taxes for 2018, and prepare the appropriate journal entry.

2. What is Fidelity’s 2018 net income?