BL Co. reported a deferred tax liability of $15M for the year ended December 31, 2020, related to a temporary difference of $60M. The tax rate was 25%. The temporary difference is expected to reverse in 2022 at which time the deferred tax liability will become payable. There are no other temporary differences in 2020-2022. Assume a new tax law is enacted in 2021 that causes the tax rate to change from 25% to 20% beginning in 2022. (The rate remains 25% for 2021 taxes.) Taxable income in 2021 is $50 million.
BL Co. reported a deferred tax liability of $15M for the year ended December 31, 2020, related to a temporary difference of $60M. The tax rate was 25%. The temporary difference is expected to reverse in 2022 at which time the deferred tax liability will become payable. There are no other temporary differences in 2020-2022. Assume a new tax law is enacted in 2021 that causes the tax rate to change from 25% to 20% beginning in 2022. (The rate remains 25% for 2021 taxes.) Taxable income in 2021 is $50 million.
Chapter17: Tax Practice And Ethics
Section: Chapter Questions
Problem 35P
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Transcribed Image Text:BL Co. reported a deferred tax liability of $15M for the year ended December 31,
2020, related to a temporary difference of $60M. The tax rate was 25%. The
temporary difference is expected to reverse in 2022 at which time the deferred tax
liability will become payable. There are no other temporary differences in 2020-2022.
Assume a new tax law is enacted in 2021 that causes the tax rate to change from 25%
to 20% beginning in 2022. (The rate remains 25% for 2021 taxes.) Taxable income in
2021 is $50 million.
Requirements: (ALL NUMBERS ARE IN MILLIONS)
(1) Determine the effect of the change on the company's retained earnings (in
millions):
(2) Prepare the appropriate journal entry to record BL's income tax expense in 2021.
Use positive numbers for debits and brackets (XXX) for credits:
Total income tax expense (in millions)
Deferred tax liability (in millions):
Income tax payable (in millions):
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