At the end of the preceding year, World Industries had a deferred tax asset of $
ID: 2568004 • Letter: A
Question
At the end of the preceding year, World Industries had a deferred tax asset of $22,000,000, attributable to its only temporary difference of $59,000,000 for estimated expenses. At the end of the current year, the temporary difference is $54,000,000. At the beginning of the year there was no valuation account for the deferred tax asset. At year-end, World Industries now estimates that it is more likely than not that one-third of the deferred tax asset will never be realized. Taxable income is $12,900,000 for the current year and the tax rate is 30% for all years.
Required:
Prepare journal entries to record World Industries' income tax expense for the current year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Explanation / Answer
Deferred tax asset balance At year end (before reversal) = 54,000,000*.30= 16,200,000
1/3 of this asset will never be realized ,so it will be reversed.
Deferred tax asset realized during the year due to change in temporary difference= 16,200,000-22,000,000= 5,800,000
Date Account debit credit Income tax expense 15,070,000 Deferred tax asset 5,800,000 valuation allowance -deferred tax asset [16,200,000*1/3] 5,400,000 Income tax payable [12,900,000*.30] 3,870,000 [being income tax expense recorded]Related Questions
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