Question

Culver Corp. has a deferred tax asset account with a balance of $161,600 at the end of 2016 due to a single cumulative temporary difference of $404,000. At the end of 2017, this same temporary difference has increased to a cumulative amount of $430,000. Taxable income for 2017 is $801,000. The tax rate is 40% for all years. No valuation account related to the deferred tax asset is in existence at the end of 2016.

(a) Record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming that it is more likely than not that the deferred tax asset will be realized.

(b) Assuming that it is more likely than not that $30,200 of the deferred tax asset will not be realized, prepare the journal entry at the end of 2017 to record the valuation account

Answer 1

Solution a:

Culver Corp.
Journal Entries
Date	Particulars	Debit	Credit
31-Dec-17	Income tax expense Dr	$310,000.00
	Deferred tax assets Dr ($26,000*40%)	$10,400.00
	To Income Tax Payable ($801,000*40%)		$320,400.00
	(To record income tax expense for the year)

Solution b:

Culver Corp.
Journal Entries
Date	Particulars	Debit	Credit
31-Dec-17	Income tax expense Dr	$30,200.00
	To Valuation Allowance - Deferred Tax Assets		$30,200.00
	(To record valuation allowance for deferred tax assets)