Refer
to the information provided about Brandon Corp. in E18-24.
In
E Brandon Corp. had a future tax asset account with a balance of $101,500 at
the end of 2010 due to a single temporary difference of $290,000 related to
warranty liability accruals. At the end of 2011, this same temporary difference
has increased to $315,000. Taxable income for 2011 is $887,000. The tax rate is
35% for all years.
Instructions
(a)
Assuming that it is more likely than not that $25,000 of the future tax asset
will not be realized, prepare the journal entries to record income taxes for
2011. Brandon uses a valuation allowance account.
(b)
In 2012, prospects for the company improved. While there was no change in the
temporary deductible differences underlying the future tax asset account, it
was now considered more likely than not that the company would be able to make
full use of the temporary differences. Prepare the entry, if applicable, to
adjust the future tax asset and related account(s).
(a)
Current Income Tax Expense.............. 310,450
Income Tax
Payable.................. 310,450
Future Income Tax Asset................. 8,750
Future
Income Tax Benefit .......... 8,750
($110,250 –
$101,500)
Future Income Tax Expense............... 25,000
Allowance to
Reduce Future Income Tax
Asset to
Expected Realizable Value 25,000
(b)
Allowance to Reduce Future Income Tax
Asset to
Expected Realizable Value... 25,000
Future
Income Tax Benefit........... 25,000
