Answer:
The journal entry record current and deferred tax at the end of 2013 is shown as:
Income tax expense: $10968
Deferred tax: $432
Income tax payable: $11400
The lower portion of the Beattie’s 2013 income statement as follows:
Pretax operating income: $34,400
Less (income tax expenses): $10968
Net income: $23432
Explanation:
The taxable income of BC is $38000 and before tax financial income is $34,400. The income tax is 30%
The income tax payable is calculated as:
Taxable income × tax rate
$38000 × 30%
= $11,400.
Expense of income tax:
Pretax financial income × tax rate
=$34, 400× 30%
=$10, 320
Warranty Liability is calculated as follows:
Taxable income- Pretax financial income
=$38, 000 - $34,400
=$3600
Deferred Tax Asset is calculated as:
Warranty liability × Tax rate
=$3600 × 30%
=$1080
Company establishes valuation allowance of 60% of is ending Deferred Tax asset.
Valuation allowance=$1080 ×60%
=$648
Net Deferred Tax asset= Deferred Tax asset - Valuation allowance
= $1080- $648
= $432
Income tax expense after reducing DTA to realizable value can be calculated below:
Net Income Tax Expense = $10320 + 648
= $10968
Therefore,
The journal entry record current and deferred tax at the end of 2013 is shown as:
Income tax expense: $10968
Deferred tax: $432
Income tax payable: $11400
The lower portion of the Beattie’s 2013 income statement as follows:
Pretax operating income: $34,400
Less (income tax expenses): $10968
Net income: $23432
