Pocus Inc Reports Bad Debt Expense Using the Allowance Method

question 105

Essay

Pocus Inc. reports bad debt expense using the allowance method. For tax purposes the direct write-off method is used. At the end of the current year, Pocus has accounts receivable and an allowance for uncollectible accounts of $10,000,000 and $500,000, respectively, and taxable income of $50,000,000. At the beginning of the current year, Pocus reported a deferred tax asset of $210,000 related to the difference in reporting bad debts, its only temporary difference. The enacted tax rate is 40% each year.
Required:
Prepare the appropriate journal entry for Pocus to record the income tax provision for the current year. Show well-labeled computations to support the three amounts in your journal entry.

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Definitions:

Heritability

A measure of how much of the variation in a trait among individuals within a population is due to genetic differences.

Extraversion

A personality trait characterized by high levels of sociability, talkativeness, and energetic behavior.

Arousal Preference

An individual's characteristic level of stimulation or excitement, influencing their engagement with the environment.

Voidable

Refers to a legal agreement or transaction that is valid and enforceable, but can be annulled or terminated by one or more of the parties involved due to certain defects or circumstances.