Question

Problem 7

B 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, B has accounts receivable and an allowance for uncollectible accounts of $5,000,000 and $200,000, respectively, and taxable income of $20,000,000. At the end of the previous year, B reported a deferred tax asset of $80,000 related to the difference in reporting bad debts, its only temporary difference. The enacted tax rate is 30% each year. Required: Prepare the appropriate journal entry for B to record the income tax provision for the current year. Show well-labeled supporting computations.

Please show all calculations, thanks.

Answer 1

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Account	Debit	Credit
Income Tax Expense	$6,020,000		Plug in
Deferred Tax Assets		$     20,000
Income Tax Payable		$6,000,000	20,000,000*30%
Deferred Tax Assets Calculation:
Beginning Balance	$     80,000
Current Year 200000*30%	$     60,000
Reversal	$     20,000