Question

Shamrock Corp. has a deferred tax asset account with a balance of $76,000 at the end of 2019 due to a single cumulative temporary difference of $380,000. At the end of 2020, this same temporary difference has increased to a cumulative amount of $407,000. Taxable income for 2020 is $805,000. The tax rate is 20% for all years. No valuation account related to the deferred tax asset is in existence at the end of 2019.
Requirements:

a. Record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming that it is more likely than not that the deferred tax asset will be realized in full.
b. Record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming that it is more likely than not that none of the deferred tax asset will be realized.

Answer 1

Answer:

a.                                              Debit             Credit

deferred income taxes         $5,400

Income tax expense             $155,600            

                        Income tax payable           $161,000

b. No valuation account related to the deferred tax asset is in existence at the end of 2019, therefore no record should be make

Explanation:

a. In order to record the income tax expense, deferred income taxes, and income taxes payable for 2017 we would have to make the following calculations as follows:

deferred income taxes=($407,000×20%)-$76,000

deferred income taxes=$5,400

Income tax payable=$805,000×20%

Income tax payable=$161,000

Income tax expense=$161,000-$5,400

Income tax expense=$155,600

Therefore, the record of  income tax expense, deferred income taxes, and income taxes payable for 2017, assuming that it is more likely than not that the deferred tax asset will be realized in full would be as follows:

                                               Debit             Credit

deferred income taxes         $5,400

Income tax expense             $155,600            

                        Income tax payable           $161,000

b. No valuation account related to the deferred tax asset is in existence at the end of 2019, therefore no record should be make