Complete question:
At the end of its first year of operations, Eagle Manufacturing has a deductible temporary difference of $100,000. Eagle has income taxes payable of $90,000 due to a tax rate of 20%. Eagle also recorded a deferred tax asset. Later, they determined that it is more likely than not that $15,000 of the deferred tax asset will not be realized. What entry should Eagle make to record the reduction in asset value?
A. Allowance to Reduce Deferred
Tax Asset to Expected Realizable
Value 15,000
Income Tax Expense 15,000
B. Income Tax Expense 15,000
Deferred Tax Asset 15,000
C. Income Taxes Payable 15,000
Income Tax Expense 15,000
D. Income Tax Expense 15,000
Allowance to Reduce Deferred
Tax Asset to Expected Realizable
Value 15,000
Answer:
Income Tax Expense = 15,000
Allowance to Reduce Deferred
Tax Asset to Expected Realizable
Value 15,000
Explanation:
A book value decrease decreases the valuation of the book asset when changes in the asset or the dynamics of the market have decreased its present market value.
Reduction of book value is a non-cash charge listed as an expense, which decreases net profit.
In this case , Option D entry should Eagle make to record the reduction in asset value
i.e, Income Tax Expense 15,000
Allowance to Reduce Deferred
Tax Asset to Expected Realisable
Value 15,000
