Question

At the end of 2020, Payne Industries had a deferred tax asset account with a balance of $115 million attributable to a temporary book- tax difference of $460 million in a liability for estimated expenses. At the end of 2021, the temporary difference is $352 million. Payne has no other temporary differences. Taxable income for 2021 is $828 million and the tax rate is 25%. Payne has a valuation allowance of $46 million for the deferred tax asset at the beginning of 2021. Required: 1. Prepare the journal entry(s) to record Payne's income taxes for 2021, assuming it is more likely than not that the deferred tax asset will be realized in full. 2. Prepare the journal entry(s) to record Payne's income taxes for 2021, assuming it is more likely than not that only one-fourth of the deferred tax asset ultimately will be realized. Answer is not complete. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare the journal entry(s) to record Payne's income taxes for 2021, assuming it is more likely than not that the deferred tax asset will be realized in full. If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).) No Transaction General Journal Credit Debit 234 1 Income tax expense Deferred tax asset Income tax payable 27 207 No journal entry required 22X

Answer 1

Solution 1:

Payne Industries
Journal Entries
Event	Particulars	Debit (In Million)	Credit (In Million)
1	Income tax expense Dr	$234.00
	To Deferred Tax Assets [($460-$352)*25%]		$27.00
	To Income Tax Payable ($828*25%)		$207.00
	(Being income tax expense recorded for 2018 and deferred tax assets reversed for temporary differences reversal )
2	Valuation allowance - Deferred tax asset Dr	$46.00
	To Income Tax Expense		$46.00
	(To record reversal of valuation allowance)

Solution 2:

Payne Industries
Journal Entries
Event	Particulars	Debit (In Million)	Credit (In Million)
1	Income tax expense Dr	$234.00
	To Deferred Tax Assets [($460-$352)*25%]		$27.00
	To Income Tax Payable ($828*25%)		$207.00
	(Being income tax expense recorded for 2018 and deferred tax assets reversed for temporary differences reversal )
2	Income tax expense Dr	$20.00
	To Valuation Allowance - Deferred Tax Assets [($352*75%)*25% - $46]		$20.00
	(To record valuation allowance for deferred tax assets)