At the end of 2015, Payne Industries had a deferred tax asset account with a bal

Question

At the end of 2015, Payne Industries had a deferred tax asset account with a balance of $30 million attributable to a temporary book-tax difference of $75 million in a liability for estimated expenses. At the end of 2016, the temporary difference is $70 million. Payne has no other temporary differences. Taxable income for 2016 is $180 million and the tax rate is 40%.     Payne has a valuation allowance of $10 million for the deferred tax asset at the beginning of 2016.     Required: 1. Prepare the journal entry(s) to record Payne’s income taxes for 2016, assuming it is more likely than not that the deferred tax asset will be realized - Record 2016 income taxes. - Record 2016 income taxes. 2. Prepare the journal entry(s) to record Payne’s income taxes for 2016, assuming it is more likely than not that one-fourth of the deferred tax asset will ultimately be realized - Record 2016 income taxes. - Record valuation allowance for the end of 2016.

Explanation / Answer

Date Account Title and Explanation Debit Credit 1 Income Tax Expense $74 Deferred Tax Asset $2 Income Tax Payable $72 2 Valuation allowance- Deferred tax asset $10 Income tax expense $10 Date Account Title and Explanation Debit Credit 1 Income Tax Expense $74 Deferred Tax Asset $2 Income Tax Payable $72 2 Income tax expense $11 Valuation allowance- Deferred tax asset $11

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