Question

At the end of the prior year, Doubtful Inc. had a deferred tax asset of $14,500,000 attributable to its only timing difference, a temporary difference of $58,000,000 in a liability for estimated expenses. At that time, a valuation allowance of $4,720,000 was established. At the end of the current year, the temporary difference is $53,000,000, and Doubtful determines that the balance in the valuation account should now be $5,000,000. Taxable income is $15,800,000 and the tax rate is 25% for all years. Required: Prepare journal entries to record Doubtful's income tax expense for the current year.

Answer 1

S/N Account Titles and Explanation Debit Credit

1 Income tax expense (balance) $6,780,000

Deferred tax asset $1,250,000

(53,000,000*25%) - 14,500,000

Income taxes payable $5,530,000

(15,800,000 *35%)

(To record tax expenses)

2 Income tax expense $280,000

Valuation allowance - deferred tax asset $280,000

(4,720,000 - 5,000,000)

(To record valuation allowance)