Lance Lawn Services reports warranty expense by estimating the amount that eventually will be paid to satisfy warranties on its product sales. For tax purposes, the expense is deducted when the cost is incurred. At December 31, 2016, Lance has a warranty liability of $2 million and taxable income of $70 million. At December 31, 2015, Lance reported a deferred tax asset of $850,000 related to this difference in reporting warranties, its only temporary difference. The enacted tax rate is 40% each year. Required: Prepare the appropriate journal entry to record Lance's income tax provision for 2016.
Lance Lawn Services reports warranty expense by estimating the amount that eventually will be paid to satisfy warranties on its product sales. For tax purposes, the expense is deducted when the cost is incurred. At December 31, 2016, Lance has a warranty liability of $2 million and taxable income of $70 million. At December 31, 2015, Lance reported a deferred tax asset of $850,000 related to this difference in reporting warranties, its only temporary difference. The enacted tax rate is 40% each year. Required: Prepare the appropriate journal entry to record Lance's income tax provision for 2016.
Chapter12: Tax Credits And Payments
Section: Chapter Questions
Problem 23P
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Question
Prepare the appropriate journal entry to record Lance's income tax provision for 2016.
Transcribed Image Text:Lance Lawn Services reports warranty expense by estimating the amount
that eventually will be paid to satisfy warranties on its product sales. For
tax purposes,
the expense is deducted when the cost is incurred. At
December 31, 2016, Lance has a warranty liability of $2 million and
taxable income of $70 million. At December 31, 2015, Lance reported a
deferred tax asset of $850,000 related to this difference in reporting
warranties, its only temporary difference. The enacted tax rate is 40% each
year.
Required:
Prepare the appropriate journal entry to record Lance's income tax
provision for 2016.
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