Question

In 2015, HD had reported a deferred tax asset of $98 million with no valuation allowance. At December 31, 2016, the account balances of HD Services showed a deferred tax asset of $130 million before assessing the need for a valuation allowance and income taxes payable of $84 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? (Round your calculations to the nearest whole million.)
$52 million

$84 million

$91 million

$123 million

Answer 1

Answer:

Option (C) is correct.

Explanation:

Deferred Tax Asset balance at 2016 end = $130,000,000

Realizable Deferred Tax Asset @70 % of balance:

= 0.7 × $130,000,000

= $91,000,000

Deferred Tax Asset balance at the end of 2015 = $98,000,000

Reduction in Deferred Tax Asset in 2016:

= Deferred Tax Asset balance at the end of 2015 - Realizable Deferred Tax Asset

= $98,000,000 - $91,000,000

= $7,000,000

Total Income Tax expense in 2016:

= Reduction in Deferred Tax Asset in 2016 +  Income Tax payable in 2016

= $7,000,000 + $84,000,000

= $91,000,000

So, answer is $91 million.