| At the end of the year, the deferred tax asset account had a balance of $12.8 million attributable to a cumulative temporary difference of $32 million in a liability for estimated expenses. Taxable income is $38.0 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.
NOTE: These are the correct entries, I am just missing the values (DTA is NOT zero): Debit: Income Tax Expense ______ Debit Deferred Tax Asset _____ Credit: Income Tax Payable 15.2
Debit: Income Tax Expense _______ Credit: Valuation Allowance – Deferred Tax Asset ____ |
| No | Description | Debit $ | Credit $ |
| 1 | Tax expense | 15.2 | |
| Deferred tax asset | 0 | ||
| Taxes payable | |||
| ( Deferred tax asset [(40% x $32) – $12.8] Taxes payable (40% x $180) |
15.2 | ||
| 2 | Tax expense | 15.2 | |
| Deferred tax asset | 0 | ||
| Taxes payable | |||
| ( Deferred tax asset [(40% x $32) – $12.8] Taxes payable (40% x $180) |
15.2 | ||
| Tax expense | 6.4 | ||
| Valuation allowance – DTA | 6.4 |
