On December 31, for GAAP purposes, Clubs Inc. reported a balance of $40,000 in a warranty liability for anticipated costs to satisfy future warranty claims. The tax basis for the warranty liability is zero. No claims were paid during the year. The increase to income tax payable on December 31 is $85,000, and the tax rate is 25%. Assume no other differences between the tax basis and GAAP basis of assets and liabilities, or any beginning balances in deferred tax accounts. Required a. Record the income tax journal entry on December 31. •Note: If a line in a journal entry isn't required for the transaction, in the last line of the journal entry, select "N/A" as the account name and leave the Dr. and Cr. answers blank (zero). Date Account Name Dec. 31 Income Tax Expense Deferred Tax Asset Income Tax Payable N/A To record income tax expense Dr. Cr. 10000 0 0 b. Assume that there was a January 1 beginning balance of $4,000 in the deferred tax asset account. How would your answer to part a change? •Note: If a line in a journal entry isn't required for the transaction, in the last line of the journal entry, select "N/A" as the account name and leave the Dr. and Cr. answers blank (zero). Date Account Name Dec. 31 Income Tax Expense Cr. Dr. Deferred Tax Asset Income Tax Payable N/A 0 0 0 0
On December 31, for GAAP purposes, Clubs Inc. reported a balance of $40,000 in a warranty liability for anticipated costs to satisfy future warranty claims. The tax basis for the warranty liability is zero. No claims were paid during the year. The increase to income tax payable on December 31 is $85,000, and the tax rate is 25%. Assume no other differences between the tax basis and GAAP basis of assets and liabilities, or any beginning balances in deferred tax accounts. Required a. Record the income tax journal entry on December 31. •Note: If a line in a journal entry isn't required for the transaction, in the last line of the journal entry, select "N/A" as the account name and leave the Dr. and Cr. answers blank (zero). Date Account Name Dec. 31 Income Tax Expense Deferred Tax Asset Income Tax Payable N/A To record income tax expense Dr. Cr. 10000 0 0 b. Assume that there was a January 1 beginning balance of $4,000 in the deferred tax asset account. How would your answer to part a change? •Note: If a line in a journal entry isn't required for the transaction, in the last line of the journal entry, select "N/A" as the account name and leave the Dr. and Cr. answers blank (zero). Date Account Name Dec. 31 Income Tax Expense Cr. Dr. Deferred Tax Asset Income Tax Payable N/A 0 0 0 0
Chapter14: Taxes On The Financial Statements
Section: Chapter Questions
Problem 31P
Related questions
Question
Transcribed Image Text:On December 31, for GAAP purposes, Clubs Inc. reported a balance of $40,000 in a warranty liability for anticipated costs to satisfy future warranty claims. The tax basis for the warranty liability is zero.
No claims were paid during the year. The increase to income tax payable on December 31 is $85,000, and the tax rate is 25%. Assume no other differences between the tax basis and GAAP basis of
assets and liabilities, or any beginning balances in deferred tax accounts.
Required
a. Record the income tax journal entry on December 31.
•Note: If a line in a journal entry isn't required for the transaction, in the last line of the journal entry, select "N/A" as the account name and leave the Dr. and Cr. answers blank (zero).
Date
Account Name
Dec. 31 Income Tax Expense
Deferred Tax Asset
Income Tax Payable
N/A
To record income tax expense
Dr.
Cr.
0
10000
0
0
0
0
b. Assume that there was a January 1 beginning balance of $4,000 in the deferred tax asset account.
How would your answer to part a change?
•Note: If a line in a journal entry isn't required for the transaction, in the last line of the journal entry, select "N/A" as the account name and leave the Dr. and Cr. answers blank (zero).
Account Name
Date
Dec. 31 Income Tax Expense
Deferred Tax Asset
Income Tax Payable
N/A
To record income tax expense
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Dr.
Cr.
0
0
0
0
ooo
0
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