Question

question1

Shwonson Industries reported a deferred tax asset of $9.25 million for the year ended December 31, 2020, related to a temporary difference of $37 million. The tax rate was 25%. The temporary difference is expected to reverse in 2022, at which time the deferred tax asset will reduce taxable income. There are no other temporary differences in 2020–2022. Assume a new tax law is enacted in 2021 that causes the tax rate to change from 25% to 15% beginning in 2022. (The rate remains 25% for 2021 taxes.) Taxable income in 2021 is $47 million.

Required:
1. Prepare the appropriate journal entry to record Shwonson’s income tax expense in 2021.
2. What effect, will enacting the change in the 2022 tax rate, have on Shwonson’s 2021 net income?

question2

At the end of 2020, Payne Industries had a deferred tax asset account with a balance of $85 million attributable to a temporary book-tax difference of $340 million in a liability for estimated expenses. At the end of 2021, the temporary difference is $256 million. Payne has no other temporary differences. Taxable income for 2021 is $612 million and the tax rate is 25%.

Payne has a valuation allowance of $34 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.

a. 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).)

b.

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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Answer 1

solution 1) 1. No Gedet Debit Account title &e explanation 15.45 II 3.7 Income Tax experse . Deferred Tax asset Income Tax payable C 42x254) 11.75 Deferred Tax asset reversal will be charged to Income Tax 39x1254-15.] = 37 % 10% 3.7 million 2. Due To change in Tax Net Income will reduce to Increase in Tax expense 37 x [25.1-15.7.) 37 x 10% 3.7 million Decrease in Net Income - 3.7 million.

No 1. particulares Debit Credit 1 174 4 21 153 Income Tax experse DX To Defeared Tax Assets [(340-756)x 25%.] To Income Tax payable [ 612 x 25% [ To record Income Tax expence for 2011 and deferred Tax assets reversed for Temporary difference reversal] 2 34 Naluation allowance - Deferred Tax Assets ar To Income Tax Expense . [ To record reversal of valuation allordance] 34 2. No Particulars Debit Credit 1 174 21 153 Income Tax expense or To Deferred Tax assets [ (240 - 25c)X254] To Income Tax payable [612x 25% Income Tax expense Dr * To valuation allowance - Deferred Tax assets [ 256X25%]* 25% - 34) [To record valuation allowance for deferred Tax assets I 2 14 14