Chapter 16, Problem 16.10E

1.

To determine

Valuation Allowance

Valuation allowance is that financial item that offsets the deferred tax assets either fully or partly as deferred tax assets are more likely not realizable.

Deferred tax asset

When the Income Tax Expense account is more than the Income Tax Payable account, this difference is known as Deferred Tax Asset.

To prepare: The journal entry to record P’s income taxes for 2016, assuming that it is more likely than not that the deferred tax asset will be realized.

2.

To determine

To prepare: The journal entry to record P’s income taxes for 2016, assuming that it is more likely than not that one-fourth of the deferred tax asset will be realized.