Final answer:
Determining income tax expense and a deferred tax asset requires calculating taxable income, which is adjusted gross income minus deductions and exemptions. After finding taxable income, apply the corresponding tax rates to calculate income tax expense. Specifics of pretax accounting and taxable income differences are necessary for accurate calculations.
Step-by-step explanation:
To accurately determine the amount of income tax expense and create the correct entry for a deferred tax asset, it is essential to calculate your taxable income. Taxable income is defined as adjusted gross income minus deductions and exemptions. With this value, we apply the federal tax rates to compute the actual tax expense. Suppose the taxable income is $20,000. You would owe $837.50 plus 15% of the amount by which $20,000 exceeds $8,375, leading to an income tax expense of $2,581.25.
However, there can be more complexity to the tax calculation, including eligibility for various tax credits or the need to consider alternative minimum tax. This underscores the importance of having a complete list of differences between pretax accounting income and taxable income. Without the specifics of these differences and how to apply them, we cannot provide the correct numbers for income tax expense or the deferred tax asset. For example, differences such as depreciation or allowances could create timing differences that impact the deferred tax calculation.