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26 February, 19:52

Shamrock Corp. has a deferred tax asset account with a balance of $76,000 at the end of 2019 due to a single cumulative temporary difference of $380,000. At the end of 2020, this same temporary difference has increased to a cumulative amount of $407,000. Taxable income for 2020 is $805,000. The tax rate is 20% for all years. No valuation account related to the deferred tax asset is in existence at the end of 2019.

Requirements:

a. Record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming that it is more likely than not that the deferred tax asset will be realized in full.

b. Record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming that it is more likely than not that none of the deferred tax asset will be realized.

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Answers (1)
  1. 26 February, 20:17
    0
    a. Debit Credit

    deferred income taxes $5,400

    Income tax expense $155,600

    Income tax payable $161,000

    b. No valuation account related to the deferred tax asset is in existence at the end of 2019, therefore no record should be make

    Explanation:

    a. In order to record the income tax expense, deferred income taxes, and income taxes payable for 2017 we would have to make the following calculations as follows:

    deferred income taxes = ($407,000*20%) - $76,000

    deferred income taxes=$5,400

    Income tax payable=$805,000*20%

    Income tax payable=$161,000

    Income tax expense=$161,000-$5,400

    Income tax expense=$155,600

    Therefore, the record of income tax expense, deferred income taxes, and income taxes payable for 2017, assuming that it is more likely than not that the deferred tax asset will be realized in full would be as follows:

    Debit Credit

    deferred income taxes $5,400

    Income tax expense $155,600

    Income tax payable $161,000

    b. No valuation account related to the deferred tax asset is in existence at the end of 2019, therefore no record should be make
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