Recording a Deferred Tax Allowance Allied Corp. has a deferred tax asset balance of $200,000 on December 31 due to a temporary difference related to a warranty expense accrual that is not deductible for tax purposes. The deferre tax asset balance has increased $40,000 over the prior year ending balance of $160,000. Taxable income for the year is $840,000 and the tax rate is 25%. There was no deferred tax asset valuation allowance recorded on January 1. Required a. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than not that the deferred tax asset ending balance of $200,000 will be realized. Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero) Date 1. Dec. 31 Date 2. Dec. 31 Account Name Income Tax Expense Deferred Tax Asset Income Tax Payable To adjust deferred tax asset balance N/A-Debit Account Name N/A - Credit To adjust deferred tax valuation allowance. Dr. 170,000 40,000 0 Dr. 0 0 Cr. 0 210,000 ✓ Cr. 0✔ b. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than not that only 60% of the deferred tax asset ending balance of $200,000 will be realized. • Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero)
Recording a Deferred Tax Allowance Allied Corp. has a deferred tax asset balance of $200,000 on December 31 due to a temporary difference related to a warranty expense accrual that is not deductible for tax purposes. The deferre tax asset balance has increased $40,000 over the prior year ending balance of $160,000. Taxable income for the year is $840,000 and the tax rate is 25%. There was no deferred tax asset valuation allowance recorded on January 1. Required a. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than not that the deferred tax asset ending balance of $200,000 will be realized. Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero) Date 1. Dec. 31 Date 2. Dec. 31 Account Name Income Tax Expense Deferred Tax Asset Income Tax Payable To adjust deferred tax asset balance N/A-Debit Account Name N/A - Credit To adjust deferred tax valuation allowance. Dr. 170,000 40,000 0 Dr. 0 0 Cr. 0 210,000 ✓ Cr. 0✔ b. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than not that only 60% of the deferred tax asset ending balance of $200,000 will be realized. • Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero)
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter3: Taxes On The Financial Statements
Section: Chapter Questions
Problem 2P
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Correct solution please
Transcribed Image Text:Recording a Deferred Tax Allowance
Allied Corp. has a deferred tax asset balance of $200,000 on December 31 due to a temporary difference related to a warranty expense accrual that is not deductible for tax purposes. The deferre
tax asset balance has increased $40,000 over the prior year ending balance of $160,000. Taxable income for the year is $840,000 and the tax rate is 25%. There was no deferred tax asset valuation
allowance recorded on January 1.
Required
a. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than
not that the deferred tax asset ending balance of $200,000 will be realized.
• Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero)
Date
1. Dec. 31
Date
2. Dec. 31
Account Name
Income Tax Expense
Deferred Tax Asset
Income Tax Payable
To adjust deferred tax asset balance
N/A - Debit
Account Name
N/A - Credit
To adjust deferred tax valuation allowance.
w
لية
Dr.
170,000
40,000
Dr.
0
0
0
Cr.
0✔
0
210,000 ✓
Cr.
0✔
0
b. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than
not that only 60% of the deferred tax asset ending balance of $200,000 will be realized.
• Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero)
Transcribed Image Text:b. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than
not that only 60% of the deferred tax asset ending balance of $200,000 will be realized.
• Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero)
Date
1. Dec. 31
Date
2. Dec. 31
Account Name
Income Tax Expense
Deferred Tax Asset
Income Tax Payable
To adjust deferred tax asset balance
Account Name
Valuation Allowance for Deferred Tax Asset
Income Tax Expense
To adjust deferred tax valuation allowance
Dr.
170,000
40,000
0
Dr.
210,000
0
Cr.
0
0
210,000
Cr.
0x
40,000 X
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