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Allied Corp. has a deferred tax asset balance of $225,000 on December 31 due to a temporary difference related to a warranty expense accrual that is not deductible for tax purposes. The deferred tax asset balance has increased $45,000 over the prior year ending balance of $180,000. Taxable income for the year is $945,000 and the tax rate is 25%. There is a deferred tax asset valuation allowance credit balance of $54,000 on January 1. Required a. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than not that the deferred tax asset ending balance of $225,000 will be realized. • Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr, and Cr. answers blank (zero) Date 1. Dec. 31 Date 2. Dec. 31 Account Name Income Tax Expense Deferred Tax Asset Date 2. Dec. 31 Income Tax Payable To adjust deferred tax asset balance Account Name Income Tax Expense Valuation Allowance for Deferred Tax Asset To adjust deferred tax valuation allowance. Date 1. Dec. 31 Income Tax Expense Deferred Tax Asset Account Name Income Tax Payable To adjust deferred tax asset balance Account Name v Income Tax Expense Valuation Allowance for Deferred Tax Asset To adjust deferred tax valuation allowance. Dr. 0 45.000 Dr. b. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than not that only 60% of the deferred tax asset ending balance of $225,000 will be realized. • Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero) Dr. 0 0 Dr. 0 45,000 0 Cr. 0 0 Cr. Cr. 0x 0✓ 0x Cr. 0x 0x 0x 0✓ 0x 0x 0x

Allied Corp. has a deferred tax asset balance of $225,000 on December 31 due to a temporary difference related to a warranty expense accrual that is not deductible for tax purposes. The deferred tax asset balance has increased $45,000 over the prior year ending balance of $180,000. Taxable income for the year is $945,000 and the tax rate is 25%. There is a deferred tax asset valuation allowance credit balance of $54,000 on January 1. Required a. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than not that the deferred tax asset ending balance of $225,000 will be realized. • Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr, and Cr. answers blank (zero) Date 1. Dec. 31 Date 2. Dec. 31 Account Name Income Tax Expense Deferred Tax Asset Date 2. Dec. 31 Income Tax Payable To adjust deferred tax asset balance Account Name Income Tax Expense Valuation Allowance for Deferred Tax Asset To adjust deferred tax valuation allowance. Date 1. Dec. 31 Income Tax Expense Deferred Tax Asset Account Name Income Tax Payable To adjust deferred tax asset balance Account Name v Income Tax Expense Valuation Allowance for Deferred Tax Asset To adjust deferred tax valuation allowance. Dr. 0 45.000 Dr. b. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than not that only 60% of the deferred tax asset ending balance of $225,000 will be realized. • Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero) Dr. 0 0 Dr. 0 45,000 0 Cr. 0 0 Cr. Cr. 0x 0✓ 0x Cr. 0x 0x 0x 0✓ 0x 0x 0x

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Rr.11.1

Recording a Deferred Tax Allowance Allied Corp. has a deferred tax asset balance of $225,000 on December 31 due to a temporary difference related to a warranty expense accrual that is not deductible for tax purposes. The deferred tax asset balance has increased $45,000 over the prior year ending balance of $180,000. Taxable income for the year is $945,000 and the tax rate is 25%. There is a deferred tax asset valuation allowance credit balance of $54,000 on January 1. Required a. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than not that the deferred tax asset ending balance of $225,000 will be realized. • Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero) Date 1. Dec. 31 Date 2. Dec. 31 Account Name Income Tax Expense Deferred Tax Asset Date 2. Dec. 31 Income Tax Payable To adjust deferred tax asset balance Account Name Income Tax Expense Valuation Allowance for Deferred Tax Asset To adjust deferred tax valuation allowance. Date 1. Dec. 31 Income Tax Expense Deferred Tax Asset Account Name Income Tax Payable To adjust deferred tax asset balance Account Name Dr. Income Tax Expense Valuation Allowance for Deferred Tax Asset To adjust deferred tax valuation allowance. 0 45,000 0 Dr. b. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than not that only 60% of the deferred tax asset ending balance of $225,000 will be realized. • Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero) Dr. 0 0 Dr. 45,000 0 Cr. 0 Cr. Cr. 0x 0✓ 0x Cr. 0x 0x 0x 0✓ 0x 0x 0x
Transcribed Image Text:Recording a Deferred Tax Allowance Allied Corp. has a deferred tax asset balance of $225,000 on December 31 due to a temporary difference related to a warranty expense accrual that is not deductible for tax purposes. The deferred tax asset balance has increased $45,000 over the prior year ending balance of $180,000. Taxable income for the year is $945,000 and the tax rate is 25%. There is a deferred tax asset valuation allowance credit balance of $54,000 on January 1. Required a. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than not that the deferred tax asset ending balance of $225,000 will be realized. • Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero) Date 1. Dec. 31 Date 2. Dec. 31 Account Name Income Tax Expense Deferred Tax Asset Date 2. Dec. 31 Income Tax Payable To adjust deferred tax asset balance Account Name Income Tax Expense Valuation Allowance for Deferred Tax Asset To adjust deferred tax valuation allowance. Date 1. Dec. 31 Income Tax Expense Deferred Tax Asset Account Name Income Tax Payable To adjust deferred tax asset balance Account Name Dr. Income Tax Expense Valuation Allowance for Deferred Tax Asset To adjust deferred tax valuation allowance. 0 45,000 0 Dr. b. Record the income tax journal entries on December 31 to (1) adjust the deferred tax asset account and (2) adjust the deferred tax asset valuation allowance, assuming that it is more likely than not that only 60% of the deferred tax asset ending balance of $225,000 will be realized. • Note: If a journal entry isn't required on any of the dates shown, select "N/A-debit" and "N/A-credit" as the account names and leave the Dr. and Cr. answers blank (zero) Dr. 0 0 Dr. 45,000 0 Cr. 0 Cr. Cr. 0x 0✓ 0x Cr. 0x 0x 0x 0✓ 0x 0x 0x
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