GEN COMBO INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD

9th Edition

ISBN: 9781260089035

Author: J. David Spiceland

Publisher: McGraw-Hill Education

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Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue autho…

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Textbook Question

Chapter 16, Problem 16.11E

Deferred tax asset; income tax payable given; previous balance in valuation allowance

• LO16–3

(This is a variation of E 16–10, modified to assume a previous balance in the valuation allowance.) At the end of 2017, Payne Industries had a deferred tax asset account with a balance of $30 million attributable to a temporary book-tax difference of $75 million in a liability for estimated expenses. At the end of 2018, the temporary difference is $70 million. Payne has no other temporary differences. Taxable income for 2018 is $180 million and the tax rate is 40%.

Payne has a valuation allowance of $10 million for the deferred tax asset at the beginning of 2018.

Required:

1. Prepare the journal entry(s) to record Payne’s income taxes for 2018, assuming it is more likely than not that the deferred tax asset will be realized.

2. Prepare the journal entry(s) to record Payne’s income taxes for 2018, assuming it is more likely than not that one-fourth of the deferred tax asset will ultimately be realized.

Definition Definition Items on the balance sheet that are created when the tax paid is more than tax considered on the income statement. Deferred tax assets result from overpayment and advance payment of taxes. They are recorded on the assets side of the balance sheet. A deferred tax asset results in the reduction of a future tax payment and is beneficial to the company. It arises when the profit as per tax laws is more than the profit as per books of accounts.

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Chapter 16, Problem 16.10E

Chapter 16, Problem 16.12E

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Chapter 16 Solutions

GEN COMBO INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD

Ch. 16 - Prob. 16.1Q Ch. 16 - A deferred tax liability (or asset) is described...Ch. 16 - Prob. 16.3Q Ch. 16 - Prob. 16.4Q Ch. 16 - Temporary differences result in future taxable or...Ch. 16 - Identify three examples of differences with no...Ch. 16 - The income tax rate for Hudson Refinery has been...Ch. 16 - Suppose a tax reform bill is enacted that causes...Ch. 16 - A net operating loss occurs when tax-deductible...Ch. 16 - Prob. 16.10Q

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Solution Summary: The author describes the journal entry to record P's income taxes for 2018, assuming that it is more likely than not that the deferred tax asset will be realized.

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