Lafayette, Inc. completed its first year of operations with a pretax loss of $80

Question

Lafayette, Inc. completed its first year of operations with a pretax loss of $800,000. The tax return showed a net operating loss of $750,000, which the company will carryforward. The $50,000 book-tax difference results from a disallowed deduction for meals and entertainment. Management has determined that they should record a valuation allowance equal to the net deferred tax asset. Assuming a tax rate of 34%, prepare the journal entries to record the deferred tax provision and the valuation allowance.

Explanation / Answer

Account title

Debit

Credit

Deferred tax asset

17000

Profit and loss account

17000

Income tax expense

17000

Valuation expense

17000

Account title

Debit

Credit

Deferred tax asset

17000

Profit and loss account

17000

Income tax expense

17000

Valuation expense

17000

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