Question

Headland Corp. has a deferred tax asset account with a balance of $144,000 at the end of 2016 due to a single cumulative temporary difference of $360,000. At the end of 2017, this same temporary difference has increased to a cumulative amount of $408,000. Taxable income for 2017 is $810,000. The tax rate is 40% for all years. No valuation account related to the deferred tax asset is in existence at the end of 2016.

(a) Record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming that it is more likely than not that the deferred tax asset will be realized. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(b) Assuming that it is more likely than not that $31,200 of the deferred tax asset will not be realized, prepare the journal entry at the end of 2017 to record the valuation account. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1