At the end of 2020, Payne Industries had a deferred tax asset
account with a balance of $70 million attributable to a temporary
book-tax difference of $280 million in a liability for estimated
expenses. At the end of 2021, the temporary difference is $208
million. Payne has no other temporary differences. Taxable income
for 2021 is $504 million and the tax rate is 25%.
Payne has a valuation allowance of $28 million for the deferred tax
asset at the beginning of 2021.
Required:
1. Prepare the journal entry(s) to record Payne’s
income taxes for 2021, assuming it is more likely than not that the
deferred tax asset will be realized in full.
2. Prepare the journal entry(s) to record Payne’s
income taxes for 2021, assuming it is more likely than not that
only one-fourth of the deferred tax asset ultimately will be
realized.
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