Question

(Deferred Tax Asset with and without valuation Account) Jennifer Capriati Corp. has a deferred tax asset account with a balance of $150,000 at the end of 2016 due to a single cumulative temporary difference of$375,000. At the end of 2017, this same temporary difference has increased to a cumulative amount of $450,000. Taxable income for 2017 is$820,000. The tax rate is 40% for all years. No valuation account related to the deferred tax asset is in existence at the end of 2016. Instructions (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. (b) Assuming that it is more likely than not that$30,000 of the deferred tax asset will not be realized, prepare the journal entry at the end of 2017 to record the valuation account.

Answer 1

Answer:

a. Income Tax Expense (Dr.) $298,000

Deferred Tax (Dr.) $30,000

Income Tax Payable (Cr.) $328,000

Explanation:

b. Income Tax expense (Dr.) $30,000

Allowance to reduce deferred tax value to NRV (Cr.) $30,000

Income tax payable is calculated based on tax rate of 40%.

$820,000 * 40% = $382,000