Required: Write Journal Entries That Fragrance International Recorded at 6/30/05 to to (1)

question 108

Essay

Required:
Write journal entries that Fragrance International recorded at 6/30/05 to (1) record any necessary changes to the fair value adjustment for available-for-sale securities and (2) record any tax effects associated with those changes.

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Definitions:

Deferred Tax Asset

A Deferred Tax Asset arises when a company pays more tax to the government than it owes in its financial statements, which can be used to reduce tax liability in future periods.

Adjusted

Refers to the modification of financial statements to provide a more accurate picture by removing the effects of non-recurring transactions or events.

Permanent Differences

Differences between taxable income and accounting income that are not temporary and hence do not reverse over time.

Pretax Financial Income

The total earnings of a company before any taxes have been deducted.