Bronson Industries reported a deferred tax liability of $8 million for the year ended December 31, 2017, relatedto a temporary difference of $20 million. The tax rate was 40%. The temporary difference is expected to reversein 2019, at which time the deferred tax liability will become payable. There are no other temporary differences in2017–2019. Assume a new tax law is enacted in 2018 that causes the tax rate to change from 40% to 30% beginning in 2019. (The rate remains 40% for 2018 taxes.) Taxable income in 2018 is $30 million.Required:1. Determine the effect of the change and prepare the appropriate journal entry to record Bronson’s income taxexpense in 2018.2. What adjustment, if any, is needed to revise retained earnings as a result of the change?

Question

Bronson Industries reported a deferred tax liability of $8 million for the year ended December 31, 2017, related
to a temporary difference of $20 million. The tax rate was 40%. The temporary difference is expected to reverse
in 2019, at which time the deferred tax liability will become payable. There are no other temporary differences in
2017–2019. Assume a new tax law is enacted in 2018 that causes the tax rate to change from 40% to 30% beginning in 2019. (The rate remains 40% for 2018 taxes.) Taxable income in 2018 is $30 million.
Required:
1. Determine the effect of the change and prepare the appropriate journal entry to record Bronson’s income tax
expense in 2018.
2. What adjustment, if any, is needed to revise retained earnings as a result of the change?

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