Smith Company records pre-tax book income of $500,000 after accruing $1,000,000 in warranty expense in its first year of operations. No warranty claims were paid in the first year. The tax rate is 30%.Suppose that prior to completing its first year's financial statements Smith determines it is unlikely to earn enough taxable income in future years to realize more than $250,000 of its deferred tax asset.Prepare an appropriate journal entry to recognize this information.
What will be an ideal response?
| Income tax expense | 50,000 | |||
| Allowance to reduce deferred tax asset to expected realizable value | 50,000 |
You might also like to view...
The Gibson Estate is responsible for collecting outstanding income amounts and paying the remaining obligations of Juanita Gibson, the deceased. How does Federal income tax law treat these items? Hint: Define and use the term income in respect of a decedent in your answer.
What will be an ideal response?
A liability would not include an obligation to
a. transfer assets. b. hire an employee. c. pay cash. d. provide services.
You are planning to buy a new house. You currently have $35,000 and your bank told you that you would need a 15% down payment plus an additional 4% in closing costs. If the house that you want to buy costs $250,000 and you can make a 7% annual return on your investment, determine the following:
a) When will you have enough money for the down payment and closing costs, assuming that the $15,000 is the only investment that you make? b) You decide that you want to buy the house in 3 years. How much do you need to save every month to achieve your goal? c) Assume that three years later the house still has the same price and that you can get a 15-year mortgage from your bank at a fixed rate of 4.5%: 1. What are the monthly payments on the loan? 2. How much will you have to pay the bank each year? 3. What is the total interest over the term of the loan? 4. How much do you pay on interest and principal the first monthly payment? 5. How much in the 50th month? (Hint: use the IPMT and PPMT functions)
The Income Summary account has a debit balance of $2,000 after the first two closing entries have been journalized and posted. The $2,000 represents the net loss of the business that will be closed into the Capital account
Indicate whether the statement is true or false