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:

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