Question

JE to record reversal of DTA:

A) Debit to Deferred Tax Asset (DTA)
B) Credit to Deferred Tax Asset (DTA)
C) Debit to Income Tax Expense
D) Credit to Income Tax Expense

Answer 1

To reverse a Deferred Tax Asset (DTA), you must debit Income Tax Expense and credit Deferred Tax Asset, which implies using the tax benefit recognized in the DTA.

Step-by-step explanation:

The question is asking for the correct journal entry (JE) necessary to reverse a Deferred Tax Asset (DTA). A reversal of a deferred tax asset would involve a debit to the Income Tax Expense and a credit to the Deferred Tax Asset, which will reduce the DTA account on the balance sheet. This is because the DTA has been used to offset income tax expense in the current period.

To account for the reversal of a Deferred Tax Asset, the correct journal entry would be:

• Debit to Income Tax Expense
• Credit to Deferred Tax Asset (DTA)

This entry assumes that previously recognized DTAs are no longer expected to realize the related tax benefit.