ABC Corp calculated that it had sustained a deferred tax asset of $450,000 in respect of a tax loss and deductible temporary difference of $2.25 million but it had not recognized any such asset in the balance sheet. During the year, a business was injected to the company by the major shareholder and the company began to derive taxable profit to offset with the loss brought forward. Required: Discuss the implication of the current development on ABC’s deferred tax asset. Suggest journal entries to effect the implication in (1). If the tax rate is increased to 30%, discuss and suggest journal entries.
ABC Corp calculated that it had sustained a deferred tax asset of $450,000 in respect of a tax loss and deductible temporary difference of $2.25 million but it had not recognized any such asset in the balance sheet. During the year, a business was injected to the company by the major shareholder and the company began to derive taxable profit to offset with the loss brought forward. Required: Discuss the implication of the current development on ABC’s deferred tax asset. Suggest journal entries to effect the implication in (1). If the tax rate is increased to 30%, discuss and suggest journal entries.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
ABC Corp calculated that it had sustained a
Required:
- Discuss the implication of the current development on ABC’s deferred tax asset.
- Suggest
journal entries to effect the implication in (1). - If the tax rate is increased to 30%, discuss and suggest journal entries.
Expert Solution
Step 1
Deferred Tax Asset:
Deferred tax asset refers to the amount overpaid or paid in advance. This can also be referred to as an amount arises where there is differences in accounting income and income under tax laws.
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