At the End of the Prior Year, Doubtful Inc

question 54

Essay

At the end of the prior year, Doubtful Inc. had a deferred tax asset of $20,000,000 attributable to its only timing difference, a temporary difference of $50,000,000 in a liability for estimated expenses. At that time, a valuation allowance of $4,000,000 was established. At the end of the current year, the temporary difference is $45,000,000, and Doubtful determines that the balance in the valuation account should now be $5,000,000. Taxable income is $15,000,000 and the tax rate is 40% for all years.
Required:
Prepare journal entries to record Doubtful's income tax expense for the current year. Show well-labeled supporting computations for the income tax payable, the valuation allowance, and the change in the deferred tax asset account.

---

Definitions:

Competition Tribunal

A specialized tribunal dealing with matters related to competition law, including mergers, monopolistic practices, and other issues that may affect fair competition.

Competition Act

Legislation intended to promote and maintain fair competition in the marketplace.

Enforcement

The act of compelling compliance with a law, rule, or obligation.

Subsection 45(2)

A specific reference within legislation or regulation that requires detailed knowledge of the context to describe accurately, often referring to a particular legal right, duty, or prohibition.