Question

In: Accounting

At the end of 2017, Payne Industries had a deferred tax asset account with a balance...

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 and no valuation allowance for the deferred tax asset. Taxable income for 2018 is $180 million and the tax rate is 40%.

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.

1.a) Record the valuation allowance

2.) Prepare the journal entry(s) to record Payne's income taxes for 2018, assuming it is more likely than not that 1/4 of the deferred tax asset will ultimately be realized.

Solutions

Expert Solution

Solution 1:

Payne Industries
Journal Entries
Event Particulars Debit (In Million) Credit (In Million)
1 Income tax expense Dr $74.00
            To Deferred Tax Assets [($75-$70)*40%] $2.00
            To Income Tax Payable ($180*40%) $72.00
(Being income tax expense recorded for 2018 and deferred tax assets reversed for temporary differences reversal )

Solution 2:

Payne Industries
Journal Entries
Event Particulars Debit (In Million) Credit (In Million)
1 Income tax expense Dr $74.00
            To Deferred Tax Assets [($75-$70)*40%] $2.00
            To Income Tax Payable ($180*40%) $72.00
(Being income tax expense recorded for 2018 and deferred tax assets reversed for temporary differences reversal )
2 Income tax expense Dr $21.00
            To Valuation Allowance - Deferred Tax Assets [($70*75%)*40%] $21.00
(To record valuation allowance for deferred tax assets)

Related Solutions

At the end of 2017, Payne Industries had a deferred tax asset account with a balance...
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 $60 million. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2018 is $235 million and the tax rate is 40%. Required: 1. Prepare the journal entry(s) to...
At the end of 2017, Payne Industries had a deferred tax asset account with a balance...
At the end of 2017, Payne Industries had a deferred tax asset account with a balance of $22 million attributable to a temporary book–tax difference of $55 million in a liability for estimated expenses. At the end of 2018, the temporary difference is $50 million. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2018 is $215 million and the tax rate is 40%. Required: 1. Prepare the journal entry(s) to...
At the end of 2017, Payne Industries had a deferred tax asset account with a balance...
At the end of 2017, Payne Industries had a deferred tax asset account with a balance of $28 million attributable to a temporary book-tax difference of $70 million in a liability for estimated expenses. At the end of 2018, the temporary difference is $65 million. Payne has no other temporary differences. Taxable income for 2018 is $200 million and the tax rate is 40%. Payne has a valuation allowance of $7 million for the deferred tax asset at the beginning...
At the end of 2017, Payne Industries had a deferred tax asset account with a balance...
At the end of 2017, Payne Industries had a deferred tax asset account with a balance of $21 million attributable to a temporary book-tax difference of $60 million in a liability for estimated expenses. At the end of 2018, the temporary difference is $40 million. Payne has no other temporary differences. Taxable income for 2018 is $140 million and the tax rate is 35%. Payne has a valuation allowance of $4 million for the deferred tax asset at the beginning...
At the end of 2017, Payne Industries had a deferred tax asset account with a balance...
At the end of 2017, Payne Industries had a deferred tax asset account with a balance of $40 million attributable to a temporary book–tax difference of $100 million in a liability for estimated expenses. At the end of 2018, the temporary difference is $80 million. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2018 is $205 million and the tax rate is 40%. Required: 1. Prepare the journal entry(s) to...
At the end of 2017, Payne Industries had a deferred tax asset account with a balance...
At the end of 2017, Payne Industries had a deferred tax asset account with a balance of $36 million attributable to a temporary book-tax difference of $90 million in a liability for estimated expenses. At the end of 2018, the temporary difference is $80 million. Payne has no other temporary differences. Taxable income for 2018 is $230 million and the tax rate is 40%. Payne has a valuation allowance of $10 million for the deferred tax asset at the beginning...
At the end of 2017, Payne Industries had a deferred tax asset account with a balance...
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 and no valuation allowance for the deferred tax asset. Taxable income for 2018 is $180 million and the tax rate is 40%. Required: 1. Prepare the journal entry(s) to...
At the end of 2015, Payne Industries had a deferred tax asset account with a balance...
At the end of 2015, Payne Industries had a deferred tax asset account with a balance of $8 million attributable to a temporary book-tax difference of $40 million in a liability for estimated expenses. At the end of 2016, the temporary difference is $20 million. Payne has no other temporary differences. Taxable income for 2016 is $80 million and the tax rate is 20% Payne has a valuation allowance of $1 million for the deferred tax asset at the beginning...
At the end of 2020, Payne Industries had a deferred tax asset account with a balance...
At the end of 2020, Payne Industries had a deferred tax asset account with a balance of $25 million attributable to a temporary book-tax difference of $100 million in a liability for estimated expenses. At the end of 2021, the temporary difference is $64 million. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2021 is $180 million and the tax rate is 25%. Required: 1. Prepare the journal entry(s) to...
At the end of 2015, Payne Industries had a deferred tax asset account with a balance...
At the end of 2015, Payne Industries had a deferred tax asset account with a balance of $40 million attributable to a temporary book–tax difference of $100 million in a liability for estimated expenses. At the end of 2016, the temporary difference is $80 million. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2016 is $205 million and the tax rate is 40%. Required: 1. Prepare the journal entry(s) to...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT