Question

Jennifer Capriati Corp. has a deferred tax asset account with a balance of $150,000 at the end of 2016 due to a single cumulative temporary difference of $375,000. At the end of 2017, this same temporary difference has increased to a cumulative amount of $450,000. Taxable income for 2017 is $820,000. The tax rate is 40% for all years. JCC had a valuation account related to its deferred tax asset of $45,000.

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.

Answer 1

Answer:

Explanation:

The journal entries are shown below:

a. Deferred tax asset A/c Dr $30,000   ($450,000 × 40% - $150,000)

   Income tax expense A/c Dr $298,000    

        To Income tax payable     $328,000   ($820,000 × 40%)

(Being the income tax expense, deferred income tax is recorded and the remaining amount is debited to the income tax expense account)

b. Income tax expense A/c Dr $45,000

      To Deferred tax asset - valuation adjustment $45,000

(Being income tax expense and valuation account is recorded)