Valuation allowance • LO16–2, LO16–3 At the end of the year, the deferred tax asset account had a balance of $12 million attributable to a cumulative temporary difference of $30 million in a liability for estimated expenses. Taxable income is $35 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%. Prepare the journal entry (s) to record income taxes, assuming it is more likely than not that one-fourth of the deferred tax asset will not ultimately be realized.
Valuation allowance • LO16–2, LO16–3 At the end of the year, the deferred tax asset account had a balance of $12 million attributable to a cumulative temporary difference of $30 million in a liability for estimated expenses. Taxable income is $35 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%. Prepare the journal entry (s) to record income taxes, assuming it is more likely than not that one-fourth of the deferred tax asset will not ultimately be realized.
Solution Summary: The author explains that valuation allowance offsets the deferred tax assets either fully or partly as they are more likely not realizable.
At the end of the year, the deferred tax asset account had a balance of $12 million attributable to a cumulative temporary difference of $30 million in a liability for estimated expenses. Taxable income is $35 million. No temporary differences existed at the beginning of the year, and the tax rate is 40%. Prepare the journal entry(s) to record income taxes, assuming it is more likely than not that one-fourth of the deferred tax asset will not 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.
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
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