Question

3. Bell Inc. reports bad debt expense using the allowance method. For tax purposes the direct write-off method is used. At the end of the current year, Bell has accounts receivable and an allowance for uncollectible accounts of $10,000,000 and $500,000, respectively, and taxable income of $50,000,000. At the beginning of the current year, Bell reported a deferred tax asset of $210,000 related to the difference in reporting bad debts, its only temporary difference. The enacted tax rate is 40% each year.

Required: Prepare the appropriate journal entry for Bell to record the income tax provision for the current year. Show well-labeled computations to support the three amounts in your journal entry.

Answer 1

Transaction	Account Titles and explanation	Debit	Credit
1	Income tax Expense ( $ 20,000,000 (-) $ 10,000)	$ 20,010,000
	Income taxes payable                     ( $ 50,000,000 x 40% )		$ 20,000,000
	Deferred tax Assets                     ( $ 210,000 (-) [ $ 500,000 x 40% ])		$ 10,000
	(To record income tax provision )