Question

At the end of the prior year, Doubtful Inc. had a deferred tax asset of $14,500,000 attributable to its only timing difference, a temporary difference of $58,000,000 in a liability for estimated expenses. At that time, a valuation allowance of $4,720,000 was established. At the end of the current year, the temporary difference is $53,000,000, and Doubtful determines that the balance in the valuation account should now be $5,000,000. Taxable income is $15,800,000 and the tax rate is 25% for all years. Required: Prepare journal entries to record Doubtful's income tax expense for the current year.

Answer 1

Answer:

S/N     Account Titles and Explanation           Debit           Credit

  1        Income tax expense (balance)         $6,780,000

                      Deferred tax asset                                        $1,250,000

                      (53,000,000*25%)  - 14,500,000

                      Income taxes payable                                   $5,530,000

                     (15,800,000 *35%)                  

            (To record tax expenses)  

2          Income tax expense                          $280,000

                      Valuation allowance - deferred tax asset    $280,000

                       (4,720,000 - 5,000,000)

            (To record valuation allowance)