Gesture Inc reports warranty expense when related products are sold. For tax pur

Question

Gesture Inc reports warranty expense when related products are sold. For tax purposes, the warranty costs are deductible as they are paid. At the end of the current year, Gesture has a warranty liability of $250,000 and taxable income of $25,000,000. At the end of the previous year, Gesture reported a deferred tax asset of $74,000 related to the temporary difference in warranty expense reporting, its only difference. The enacted tax rate is 40%.

Please prepare the appropriate journal entry to record the income tax providion for the current year. You must show your computations.

Explanation / Answer

Profit Loss A/c      9,974,000 Deffered Tax Asset A/c            26,000 Provision for Taxation A/c        10,000,000

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