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%. Prepare the following:Amount of deferred tax asset
Amount of income tax payable
Amount of income tax expense
Journal entry to record income tax
What will be an ideal response?
a. Deferred tax asset = warranty expense × tax rate = $1,000,000 × 0.30 = $300,000
b. Income tax payable = book income + warranty expense = $1,500,000 × 0.30 = $450,000
c. Income tax expense (payable of $450,000 ? deferred tax asset $300,000) = $150,000
| d. | Income tax expense | 150,000 | |||
| Deferred tax asset | 300,000 | ||||
| Income tax payable | 450,000 |
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What will be an ideal response?
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