Connect https://newconnect.mheducation.com/flow/connect.html 9096 Search Chapter

Question

Connect https://newconnect.mheducation.com/flow/connect.html 9096 Search Chapter 16 6 Help Save & Exlt Submlt Check my work At the end of 2017, Payne Industries had a deferred tax asset account with a balance of $12 million attributable to a temporary book-tax difference of $60 million in a liability for estimated expenses. At the end of 2018, the temporary difference is $20 million. Payne has no other temporary differences. Taxable income for 2018 is $90 million and the tax rate is 20%. points Payne has a valuation allowance of $1 million for the deferred tax asset at the beginning of 2018. ok1. Prepare the journal entry(s) to record Payne's income taxes for 2018, assuming it is more likely than not that the deferred tax asset Hint Print RoferencRS will be realized. 2. Prepare the jounal entryls) to record Payne's income taxes for 2018, assuming it is more likely than not that one fourth of the deferred tax asset will ultimately be realized. Complete this question by entering your answers in the tabs below. Required 1Rqed 2 Prepare the journal entry(s) to record Payne's income taxes for 2018, assuming it is more likely than not that one- fourth of the deferred tax asset will ultimately be realized. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).) Show lessA View transaction list KPrey 3 of 12 Next> 1:48 PM O Type here to search 3/23/2018

Explanation / Answer

In First requirement it is said that it is likely that no deferred tax would be utlized in future.It is only possible when there is less or no chances in future for taxable profits against which it can be utilised.So we dont need to record any balance in deferred tax account as at end of 2018 due to $20 million timing differences.And also we need to reverse the entry to write the balance of $12 million which exist as at end of 2017.so need to pass journal Entry

Profit & loss A/c Dr $12 million

To Deferred Tax Asset $12million.

Second requirement it is said that it is more likely that not more than one fourth of deferred tax asset will ultimately utilized.so Timing Difference which exist at end of 2018 is $20 millon & so 20% of $20million =$4 million shall be balance of deffered tax asset at end of year in case there is possiblity that it would be able to get utilised against future taxable profits but it is assumed that not more than one fourth can be utilised so one fourth of $4 miilion= $1 million balance at end of 2018.

so balance of $11 million to be written from deferred tax account to carry forward $1 million in future.Journal entry

Profit & loss Account Dr $11 million

To Deferred Tax Asset $11 Million

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.