At the end of 2017, Payne Industries had a deferred tax asset account with a bal

Question

At the end of 2017, Payne Industries had a deferred tax asset account with a balance of $36 million attributable to a temporary book–tax difference of $90 million in a liability for estimated expenses. At the end of 2018, the temporary difference is $80 million. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2018 is $195 million and the tax rate is 40%.

At the end of 2017, Payne Industries had a deferred tax asset account with a balance of $36 million attributable to a temporary book-tax difference of $90 million In a liablity for estimated expenses. At the end of 2018, the temporary difference is $80 milion. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable Income for 2018 Is $195 million and the tax rate is 40%. Required: 1. Prepare the Journal entry(s) to record Payne's Income taxes for 2018, assuming it Is more lkely than not that the deferred tax asset will be realized. 2. Prepare the Journal entry(s) to record Payne's Income taxes for 2018, assuming it is more likely than not that one-fourth of the deferred tax asset will ultimately be realized Complete this question by entering your answers in the tabs below. Required 1Required 2 Prepare the journal entry(s) to record Payne's income taxes for 2018, assuming it is more likely than not that the deferred tax asset will be realized. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) General Journal Debit Credit Income tax expense 82 Deferred tax asset 4 Income tax payable 78 2 2 Income tax expense 145 Deferred tax asset Income tax payable Valuation allowance Deferred tax asset 24

Explanation / Answer

Solution:

Payne Industries Journal Entries Event Particulars Debit (In Million) Credit (In Million) 1 Income tax expense Dr $82.00             To Deferred Tax Assets [($90-$80)*40%] $4.00             To Income Tax Payable ($195*40%) $78.00 (Being income tax expense recorded for 2018 and deferred tax asses reversed for temporary differences reversal ) 2 Income tax expense Dr $106.00             To Deferred Tax Assets [($90-$80)*40%] $4.00             To Income Tax Payable ($195*40%) $78.00             To Valuation Allowance - Deferred Tax Assets [($80 - $20)*40%] $24.00 (Being income tax expense recorded for 2018 and deferred tax asses reversed for temporary differences reversal )

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