Stephens Company has a deductible temporary difference of P2,000,000 at the end of its first year of operations. Its tax rate is 40 percent. Stephens has P1,800,000 of income taxes payable. At the end of the first year, after a careful review of all available evidence, Stephens determines that it is probable that it will not realize P200,000 of this deferred tax asset. At the end of the second year of operations, Stephens Company determines that it expects to realize P1,850,000 of this deferred tax assets. On Stephens Company’s income statement for the second year, what amount of income tax expense will it report related to the temporary difference, and is the amount a debit or credit? P40,000 credit. P40,000 debit. P20,000 debit. P20,000 credit.
Stephens Company has a deductible temporary difference of P2,000,000 at the end of its first year of operations. Its tax rate is 40 percent. Stephens has P1,800,000 of income taxes payable. At the end of the first year, after a careful review of all available evidence, Stephens determines that it is probable that it will not realize P200,000 of this deferred tax asset. At the end of the second year of operations, Stephens Company determines that it expects to realize P1,850,000 of this deferred tax assets. On Stephens Company’s income statement for the second year, what amount of income tax expense will it report related to the temporary difference, and is the amount a debit or credit? P40,000 credit. P40,000 debit. P20,000 debit. P20,000 credit.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Stephens Company has a deductible temporary difference of P2,000,000 at the end of its first year of operations. Its tax rate is 40 percent. Stephens has P1,800,000 of income taxes payable. At the end of the first year, after a careful review of all available evidence, Stephens determines that it is probable that it will not realize P200,000 of this deferred tax asset. At the end of the second year of operations, Stephens Company determines that it expects to realize P1,850,000 of this deferred tax assets . On Stephens Company’s income statement for the second year, what amount of income tax expense will it report related to the temporary difference, and is the amount a debit or credit?
P40,000 credit.
P40,000 debit.
P20,000 debit.
P20,000 credit.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
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
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education