At the end of 2017, Payne Industries had a deferred tax asset
account with a balance of $30 million attributable to a temporary
book–tax difference of $75 million in a liability for estimated
expenses. At the end of 2018, the temporary difference is $60
million. Payne has no other temporary differences and no valuation
allowance for the deferred tax asset. Taxable income for 2018 is
$160 million and the tax rate is 40%.
Required:
1. Prepare the journal entry(s) to record Payne’s
income taxes for 2018, assuming it is more likely than not that the
deferred tax asset will be realized.
2. Prepare the journal entry(s) to record Payne’s
income taxes for 2018, assuming it is more likely than not that
one-fourth of the deferred tax asset will ultimately be
realized.
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