BL Co. reported a deferred tax liability of $15M for the year ended December 31, 2020, related to a temporary difference of $60M. The tax rate was 25%. The temporary difference is expected to reverse in 2022 at which time the deferred tax liability will become payable. There are no other temporary differences in 2020-2022. Assume a new tax law is enacted in 2021 that causes the tax rate to change from 25% to 20% beginning in 2022. (The rate remains 25% for 2021 taxes.) Taxable income in 2021 is $50 million.
BL Co. reported a deferred tax liability of $15M for the year ended December 31, 2020, related to a temporary difference of $60M. The tax rate was 25%. The temporary difference is expected to reverse in 2022 at which time the deferred tax liability will become payable. There are no other temporary differences in 2020-2022. Assume a new tax law is enacted in 2021 that causes the tax rate to change from 25% to 20% beginning in 2022. (The rate remains 25% for 2021 taxes.) Taxable income in 2021 is $50 million.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![BL Co. reported a deferred tax liability of $15M for the year ended December 31,
2020, related to a temporary difference of $60M. The tax rate was 25%. The
temporary difference is expected to reverse in 2022 at which time the deferred tax
liability will become payable. There are no other temporary differences in 2020-2022.
Assume a new tax law is enacted in 2021 that causes the tax rate to change from 25%
to 20% beginning in 2022. (The rate remains 25% for 2021 taxes.) Taxable income in
2021 is $50 million.
Requirements: (ALL NUMBERS ARE IN MILLIONS)
(1) Determine the effect of the change on the company's retained earnings (in
millions):
(2) Prepare the appropriate journal entry to record BL's income tax expense in 2021.
Use positive numbers for debits and brackets (XXX) for credits:
Total income tax expense (in millions)
Deferred tax liability (in millions):
Income tax payable (in millions):](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1d138fb3-5ea4-45db-8a0a-4a8252490fc8%2F34a96d85-bc0b-4e35-8a2d-afea41cc951f%2F17097me_processed.jpeg&w=3840&q=75)
Transcribed Image Text:BL Co. reported a deferred tax liability of $15M for the year ended December 31,
2020, related to a temporary difference of $60M. The tax rate was 25%. The
temporary difference is expected to reverse in 2022 at which time the deferred tax
liability will become payable. There are no other temporary differences in 2020-2022.
Assume a new tax law is enacted in 2021 that causes the tax rate to change from 25%
to 20% beginning in 2022. (The rate remains 25% for 2021 taxes.) Taxable income in
2021 is $50 million.
Requirements: (ALL NUMBERS ARE IN MILLIONS)
(1) Determine the effect of the change on the company's retained earnings (in
millions):
(2) Prepare the appropriate journal entry to record BL's income tax expense in 2021.
Use positive numbers for debits and brackets (XXX) for credits:
Total income tax expense (in millions)
Deferred tax liability (in millions):
Income tax payable (in millions):
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education