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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Refer to RE18-3. Prepare the additional journal entry necessary for Madison Corporation assuming that the corporation decides that it is “more likely than not” that $500 of the $5,000 future deductible amount will not be realized.
Prepare the additional journal entry that is necessary for Corporation M to record the future deductible amount that would not be realized.
Valuation Allowance: Valuation allowance is that financial item that offsets the deferred tax assets either fully or partly as deferred tax assets are more likely not realizable.
Prepare the additional journal entry:
| Date | Accounts title and explanation | Post Ref. | Debit | Credit |
| December 31, 2019 | Income Tax Expense (1) | Â | $125 | Â |
| Â | Â Â Â Â Allowance to reduce deferred tax asset to realizable value | Â | Â | $125 |
| Â | (To record the creation of valuation allowance) | Â | Â | Â |
Table (1)
- Income Tax Expense is the component of stockholders’ equity and decreases, so debit it for $125...
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