Question

Sheridan Corp. has a deferred tax asset account with a balance of $74,440 at the end of 2019 due to a single cumulative temporary difference of $372,200. At the end of 2020, this same temporary difference has increased to a cumulative amount of $450,400. Taxable income for 2020 is $757,900. The tax rate is 20% for all years. At the end of 2019, Sheridan Corp. had a valuation account related to its deferred tax asset of $44,800.

(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 in full.

(b) Record income tax expense, deferred income taxes, and income taxes payable for 2020, assuming that it is more likely than not that none of the deferred tax asset will be realized.

Answer 1

a) Journal Entries :-
Particulars	Debit	Credit
Income Tax Expense	$135,940
Deferred Income Tax Asset ((450400-372200)*20%)	$ 15,640
Income Tax Payable (757900*20%)		$151,580
Deferred Tax Asset Valuation Account	$ 44,800
Income Tax Expense		$ 44,800
b).
Particulars	Debit	Credit
Income Tax Expense	$135,940
Deferred Income Tax Asset	$ 15,640
To Income Tax Payable		$151,580
Income Tax Expense (74440+15640-44800)	$ 45,280
Deferred Tax Asset Valuation Account		$ 45,280