Question

Teal Corp. has a deferred tax asset account with a balance of $68,600 at the end of 2019 due to a single cumulative temporary difference of $343,000. At the end of 2020, this same temporary difference has increased to a cumulative amount of $463,000. Taxable income for 2020 is $824,000. The tax rate is 20% for all years. No valuation account related to the deferred tax asset is in existence at the end of 2019.

(a) Record income tax expense, deferred income taxes, and income taxes payable for 2020, assuming that it is more likely than not that the deferred tax asset will be realized. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

(b) Assuming that it is more likely than not that $24,000 of the deferred tax asset will not be realized, prepare the journal entry at the end of 2020 to record the valuation account. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

Answer 1

Calculate temporary diff. for 2020.

= 463000-343000

.= 120000

a)

Date	Particulars	Debit ($)	Credit ($)
	Income tax expense	140800
	Deferred tax asset (120000*20%)	24000
	Income tax payable (824000*20%)		164800
	(To record income tax expense and deferred tax asset)

b)

Date	Particulars	Debit ($)	Credit ($)
	Income tax expense	140800
	Deferred tax asset (120000*20%)	24000
	Income tax payable (824000*20%)		164800
	(To record income tax expense and deferred tax asset)
	Income tax expense	24000
	Allowance for deferred tax asset		24000
	(To record reversal of unrealized deferred tax asset)