Question

Jennifer Capriati Corp. has a deferred tax asset account with a balance of $75,000 at the end of 2019 due to a single cumu- lative temporary difference of $375,000.

At the end of 2020, this same temporary difference has increased to a cumulative amount of $450,000.

Taxable income for 2020 is $820,000. The tax rate is 20% for all years. No valuation account related to the deferred tax asset is in existence at the end of 2019.

a. Record income tax expense, deferred income taxes, and income taxes payable for 2020, assuming that it is more likely than not that the deferred tax asset will be realized.

b. Assuming that it is more likely than not that $15,000 of the deferred tax asset will not be realized, prepare the journal entry at the end of 2020 to record the valuation account.

Answer 1

Temporary Difference    = Increase in Cummulative amount (-) Cumulative amount                                                  =       $450,0000 (-)$375,000                                                  =$75,000

Date	Account Tittle & Explanation	Debit (in $)	Credit (in $)
2020	Deferred Tax Asset $75,000 x 20%	$15,000
	Income tax expense / Provision	$149,000
	Income taxes payable                     ($820,000 x 20%)		$164,000
	(To record income taxe expense )
Date	Account Tittle & Explanation	Debit (in $)	Credit (in $)
2020	Deferred Tax Asset $75,000 x 20%	$15,000
	Income tax expense / Provision	$149,000
	Income taxes payable                     ($820,000 x 20%)		$164,000
	(To record income taxes )
2020	Income tax expense / Provision	$15,000
	Valuation Adjustment,Allowance for Deferred tax Asset		$15,000
	(To record the Unrealized deferred tax Asset)