MAC, Inc, Completed Its First Year of Operations with a Pretax

question 47

Essay

MAC, Inc., completed its first year of operations with a pretax loss of $300,000. The tax return showed a net operating loss of $500,000. The $200,000 book-tax difference results from excess tax depreciation over book depreciation. Management has determined that they should record a valuation allowance equal to the net deferred tax asset. Prepare the journal entries to record the deferred tax provision and the valuation allowance.

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Definitions:

Total Common Equity

The sum of a company's equity capital and retained earnings, representing the ownership interest of common shareholders.

EPS

Earnings Per Share, a measure of a company's profitability calculated by dividing its net income by the number of outstanding shares.

Shares Outstanding

The total number of shares of a company that are currently owned by investors, including both public and institutional holdings.

P/E Ratio

Stands for Price-to-Earnings Ratio, a valuation metric used to compare a company’s current share price to its per-share earnings.