Question

Tax Drill -

Deferred Tax Asset Ion Corporation has income tax expense/payable for book purposes of $200,000 and $250,000 for tax purposes. Assume that Ion will only be able to use $30,000 of any deferred tax asset with the balance expiring.

As a result, Ion will record a deferred tax asset of $ 50 (incorrect)

and a valuation allowance of $ 20 (incorrect) .

???

Answer 1

Solution:

Given data:

Income tax expenses for book purpose                =$2,00,000

Income tax expenses for tax purpose =$2,50,000

Loan will be able to use in future                  =$30,000

Computation of Deferred tax Asset

Deferred tax Asset = Income tax expenses for tax purpose - Income tax expenses for book purpose    =$2,50,000 - $2,00,000

=$50,000

Therefore deferred tax asset     = $50,000

Computation of Deferred tax Asset valuation Allowance

Deferred tax Asset valuation Allowance = Deferred tax Asset - Loan will be able to use in future                 

=$50,000-$30,000

=$20,000

Deferred tax Asset valuation Allowance     = $20,000

The Deferred Tax Asset valuation allowance is a contract asset account which is deducted from the Deferred tax account to arrive at the balance sheet value of deferred tax asset

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