Pocus, Inc

question 104

Essay

Pocus, Inc., reports warranty expense when related products are sold. For tax purposes, the warranty costs are deductible as incurred. At the end of the current year, Pocus has a warranty liability of $200,000 and taxable income of $20,000,000. At the end of the previous year, Pocus reported a deferred tax asset of $80,000 related to the difference in reporting warranty expense, its only temporary difference. The enacted tax rate is 30% each year.
Required:
Prepare the appropriate journal entry for Pocus to record the income tax provision for the current year. Show well-labeled supporting computations.

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Definitions:

Organization Size

The magnitude of an organization in terms of its dimensions, such as the number of employees, the scale of operations, or the market reach.

Employee Identification

The process by which workers align their values, beliefs, or behaviors with those of their employer, often leading to increased loyalty and job satisfaction.

Shift Loyalties

The act of changing alliance or fidelity from one association, brand, or cause to another, often influenced by new information or changes in circumstances.

Socialization Practices

The processes through which individuals learn and adopt the norms, values, behaviors, and social skills appropriate to their society or culture.