Question

# At 12-31-2015, Sampson Company had a gross deferred income tax asset of \$190,000 and a valuation...

At 12-31-2015, Sampson Company had a gross deferred income tax asset of \$190,000 and a valuation allowance of \$70,000. At 12-31-2016, Sampson Company had a deferred income tax asset of \$300,000. At 12-31-2016, the management of Sampson Company believed that there was a 60% probability that \$205,000 of the income tax benefits from the gross deferred income tax asset would be realized and a 20% probability that the other \$95,000 of the income tax benefits from the gross deferred income tax asset would be realized. Pretax book income was \$2,000,000 for 2016. Income taxes payable as a result of filing the income tax return for 2016 were \$800,000.

What was net income for 2016 for Sampson ?

Solution:

Valuation allowance at 31.12.2016 = (\$205,000*40%) + (\$95,000*80%) = \$158,000

Gross Deferred tax assets at 31.12.2016 = \$300,000

Net Deferred tax assets at 31.12.2016 = \$300,000 - \$158,000 = \$142,000

Net deferred tax assets at 31.12.2015 = \$190,000 - \$70,000 = \$120,000

Deferred tax assets recognized in 2016 = \$142,000 - \$120,000 = \$22,000

Income tax expense for 2016 = Income tax payable - Deferred tax assets recognized = \$800,000 - \$22,000 = \$778,000

net Income for 2017 = Pre tax book income - Income tax expense = \$2,000,000 - \$778,000 = \$1,222,000