MAC,IncCompleted Its First Year of Operations with a Pretax Loss

question 32

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,which MAC will carryforward.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.Assuming a tax rate of 34%,prepare the journal entries to record the deferred tax provision and the valuation allowance.

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Definitions:

IFRS

International Financial Reporting Standards, a set of accounting guidelines providing a global framework for financial statements.

Deferral Method

An accounting procedure that postpones the recognition of certain income or expenses until a later accounting period.

Financial Statements

Reports that provide an overview of a company's financial condition, including income statement, balance sheet, statement of cash flows, and statement of changes in equity.

Capital Assets

Long-term assets that a business uses in its operations and that are not intended for resale, such as property, plant, and equipment.