At the Beginning of the Year, Schrader, Inc

question 122

Essay

At the beginning of the year, Schrader, Inc., holds a net operating loss carryforward, and its balance sheet shows a related deferred tax asset of $500,000. At the end of the year, the balance in the deferred tax asset account has not changed, but Schrader's auditors want to record a $90,000 valuation allowance against this amount, because of a persistent downturn in Schrader's profitability. Develop the journal entry to record the valuation allowance.

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Definitions:

Operating Cycle

The duration of time from the purchase of raw materials to the collection of receivables resulting from sales.