Homework Answers
According to the requirement of the question, We have to record the Journal entries.
Requirement a:- Prepare the Journal entry to record the deferred tax consequences of the current year NOL before considering the valuation allowance.
Solution:- Journal Entry
| Transaction | General Journal | Debit ($) | Credit($) |
| 1. | Deferred Tax Assets (Working Note) | $126,000 | |
| Deferred Tax Benefits | $126,000 | ||
| (Record record the deferred tax consequences of the current year NOL before considering the valuation allowance) |
Working Note:-
= Operating Loss * Tax rate
= $600,000 * 21% = $126,000
Requirement b:- Prepare the journal entry to record the deferred tax consequences of depreciation book-tax difference.
Solution :- Journal Entry
| Transaction | General Journal | Debit($) | Credit($) |
| 1. | Deferred Tax Expenses | $21,000 | |
| Deferred Tax Liability (Working Note) | $21,000 | ||
| (Record the deferred tax consequences arising from book-tax depreciation difference) |
Working Note:-
= Book-Tax Difference * Tax Rate
= $100,000 * 21% = $21,000
Requirement c:- Prepare the Journal entry to record the deferred tax consequences of valuation allowance.
Solution:- Journal entry
| Transaction | General Journal | Debit ($) | Credit($) |
| 1 | Deferred Tax Benefit (Working Note) | $105,000 | |
| Valuation Allowance | $105,000 | ||
| (Record the Valuation Allowance) |
Working Note:-
= Pretax Loss * Tax Rate
=($600,000 - $100,000) * 21%
= $500,000 * 21% = $105,000
Thank you..
Have a Nice day ahead..
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21% Tax rate
21% Tax Rate
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