Deferred Tax Liabilities and Assets On January 1, the company ment securities fo

Question

Deferred Tax Liabilities and Assets On January 1, the company ment securities for $2,000. The securities are class Practice 16-11 been sold. The trading By December 31,the securities had a fair value of $4200 but had not yet been sold also recognized a $7,000 restructuring charge during the year. The restructuring charge is compenay mpairment write-down on a manufacturing facility. Tax rules do not allow a deduction for the f unless the facility is actually sold, the facility was not sold by the end of the year. Excluding the t wite-dow curities and the restructuring charge, income before taxes for the year was 525,000. Assume that de no other book-tax differences. The income tax rate is 40% for the current year and all future the journal entry or entries necessary to record incorne tax expense for the year. State any must make assumptions

Explanation / Answer

Unrealised Gain on Trading securities = 4200 -2000 = 2200

Accounting income after adjustment before taxes = 25000 +2200 -7000 = 20200

Date Account title Debit credit Dec 31 Income tax expense [20200*.40] 8080 Deferred tax asset 1920 Income tax payable [25000*.40] 10000

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