Question

At the end of the prior year, Doubtful Inc. had a deferred tax asset of $18,500,000 attributable to its only timing difference, a temporary difference of $47,000,000 in a liability for estimated expenses. At that time, a valuation allowance of $3,730,000 was established. At the end of the current year, the temporary difference is $42,000,000, and Doubtful determines that the balance in the valuation account should now be $5,000,000. Taxable income is $14,700,000 and the tax rate is 35% for all years.

Required:

Prepare journal entries to record Doubtful's income tax expense for the current year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1

Record the income taxes.

2

Record valuation allowance for the year end.

Answer 1

1	Income tax expense (balance)		8,945,000
		Deferred tax asset (42,000,000*35%) - 18,500,000		3,800,000
		Income taxes payable (14,700,000*35%)		5,145,000
	(To record tax expenses)
2	Income tax expense		1,270,000
		Valuation allowance - deferred tax asset (3,730,000 - 5,000,000)		1,270,000
	(To record valuation allowance)