1. For the current year ($ in millions), Centipede Corp. had $86 in pretax accounting income. This included warranty expense of $9 and $23 in depreciation expense. 5 million of warranty costs were incurred (allowed for tax deduction), and MACRS depreciation amounted to $38. In the absence of other temporary or permanent differences, what was Centipede's income tax payable currently, assuming a tax rate of 40%?
2. In 2015, HD had reported a deferred tax asset of $94 million with no valuation allowance. At December 31, 2016, the account balances of HD Services showed a deferred tax asset of $125 million before assessing the need for a valuation allowance and income taxes payable of $82 million. HD determined that it was more likely than not that 30% of the deferred tax asset ultimately would not be realized. HD made no estimated tax payments during 2016. What amount should HD report as income tax expense in its 2016 income statement?
3. Southern Atlantic Distributors began operations in January 2016 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2016, 30% in 2017, and 20% in 2018. Pretax accounting income for 2016 was $320,000, which includes interest revenue of $30,000 from municipal bonds. The enacted tax rate is 40%.
Assuming no differences between accounting income and taxable income other than those described above:
1. Prepare the journal entry to record income taxes in 2016.
2. What is Southern Atlantic's 2016 net income?