At the end of the prior year, Doubtful Inc. had a deferred tax asset of $20 million attributable to its only timing difference, a temporary difference of $80 million in a liability for estimated expenses. At that time, a valuation allowance of $4 million was established. At the end of the current year, the temporary difference is $45 million and Doubtful determines that the balance in the valuation account should now be $5 million. Taxable income is $15 million and the tax rate is 25% for all years.
Required: Prepare journal entries to record Doubtful's income tax expense for the current year. Show well-labeled supporting computations for the income tax payable, the valuation allowance, and the change in the deferred tax asset account.
