Exercise 16-11

At the end of 2012, Payne Industries had a deferred tax asset account
with a balance of $30 million attributable to a temporary book-tax
difference of $75 million in a liability for estimated expenses. At the
end of 2013, the temporary difference is $70 million. Payne has no
other temporary differences and no valuation allowance for the
deferred tax asset. Taxable income for 2013 is $180 million and the
tax rate is 40%.
Payne
y has a valuation allowance of $10 $ million for the deferred tax asset
at the beginning of 2013.

©Dr. Chula King

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Exercise 16-11 (continued)

Part 1: Prepare the journal entry(s) to record Payne’s income tax for
2013, assuming it is more likely than not that the deferred tax asset
will be realized.
Tax expense (plug) 74
Deferred tax asset [(40% x $70) - $30] 2
Taxes payable (40% x $180) 72

Valuation allowance – DTA 10

Tax expense 10

©Dr. Chula King

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Exercise 16-11 (continued)

Part 2: Prepare the journal entry(s) to record Payne’s income taxes for
2013, assuming it is more likely than not that one-half of the deferred
tax asset will ultimately be realized.
Tax expense (plug) 74
Deferred tax asset [(40% x $70) - $30] 2
Taxes payable (40% x $180) 72

Tax expense 4
Valuation allowance – DTA 4
½ x (40% x $30) - $10

©Dr. Chula King

All Rights Reserved