Question

HD had reported a deferred tax asset of $130 million with no valuation allowance. At December 31, 2021, the account balances of HD Services showed a deferred tax asset of $170 million before assessing the need for a valuation allowance and income taxes payable of $90 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 2021. What amount should HD report as income tax expense in its 2021 income statement?

Answer 1

Answer:

$101 million income tax expense

Explanation:

The income tax of HD can be computed by beginning with income tax payable less the increase in deferred tax asset in the year and finally by deducting the portion of current deferred tax asset that cannot be realized as shown below:

Current income tax payable                           $90 million

increase in deferred tax asset($170-$130)     ($40 million)

unrealized deferred tax asset ($170*30%)      $51 million

income tax expense in income statement      $101 million

The HD income tax expense in income statement in 2021 is $101 million as computed due to the fact that prior payment in tax ha been paid in the year