At the Beginning of 2014, Jasper Company Had a Deferred

question 44

Essay

At the beginning of 2014, Jasper Company had a deferred tax asset of $7,000 related to the warranty liability on its balance sheet. At the end of 2014, the company estimates that its ending warranty liability is $40,000. Taxable income is $60,000, and the tax rate is 40%.
Required:
a.Prepare the journal entry to record income taxes for the year.
b.Assume the company decides at the end of the year that it is "more likely than not" that $11,000 of the deductible temporary difference will not be realized. Prepare the appropriate journal entry.
c.Show how the deferred tax asset would be reported on the balance sheet for 2014.

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Definitions:

Scabies

Scabies is a contagious skin condition caused by tiny mites burrowing into the skin, leading to intense itching and a rash.

Lice

Parasitic insects that infest the hair and skin of humans and animals, causing itching and discomfort.

Direct Transfer

A method of electronically moving funds from one account to another without the need for paper checks or cash handling.

Indirect Contact

The spread of disease through touching surfaces or objects contaminated by an infected person, instead of direct physical contact.