Question

Winter Corporation starts the year with a cumulative unfavorable temporary difference (due to accrued warranties) of $100,000. During the year, the enacted tax rate on Winter Corporation decreases from 35% to 21%; however, book and tax depreciation are equal and the cumulative temporary difference does not change.  What journal entry would Winter Corporation record for deferred taxes this year?

	a.	Debit Deferred tax asset $14,000 Credit Deferred tax liability      $14,000
	b.	Debit Deferred tax asset         $14,000, Credit Deferred Income tax expense $14,000
	c.	Debit Deferred income tax expense.   $14,000, Credit Deferred tax asset                    $14,000
	d.	No journal entry required

Answer 1

Correct Option C
Debit Deferred income tax expense.   $14,000,
Credit Deferred tax asset                    $14,000
Reason: In previous year, due to unfavorable temporary difference, deferred tax had been created and deferred tax income tax expense had been credited. Now due to lowering the tax rate, our tax benefit associated with $100000 warranty temporary difference also get decreased and our expense has increased. so to recognize such expense above entry is passed.