Question

Saginaw Inc. completed its first year of operations with a pretax loss of $512,500. The tax return showed a net operating loss of $656,500, which the company wll carry forward. The $144,000 book-tax difference results from excess tax depreclation over book depreclation. Management has determined that It should record a valuation allowance equal to the net deferred tax asset. Assuming the current tax expense is zero, prepare the Journal entries to record the deferred tax provision and the valuation allowance. (If no entry is required for e transaction/event, select "No Journal Entry Required" In the first account field.)

Answer 1

Deferred tax asset = 656,500*34% = 223,210

Deferred tax liability = 144,000*34% = 48,960

Deferred tax benefit = (656,500-144,000)*34% = 174,250

Journal entries:

Particulars	Debit(Amt)	Credit(Amt)
Deferred tax asset A/c	223,210
To deferred tax benefit A/c		223,210
Deferred tax expense A/c	48,960
To deferred tax liability A/c		48,960
Deferred tax benefit A/c	174,250
To valuation allowance		174,250