(Deferred Tax Asset with and without Valuation Account)
Callaway Corp. has a deferred tax asset account with a balance of $152,880 at the end of 2010 due to a single cumulative temporary difference of $382,200. At the end of 2011 this same temporary difference has increased to a cumulative amount of $504,200. Taxable income for 2011 is $857,900. The tax rate is 40% for all years. No valuation account related to the deferred tax asset is in existence at the end of 2010.
(a) Record income tax expense, deferred income taxes, and income taxes payable for 2011, assuming that it is more likely than not that the deferred tax asset will be realized.
Debit Income Tax Expense $XXXX
Debit XXXX $XXXX
Income Tax Payable $XXXX
(b) Assuming that it is more likely than not that $43,900 of the deferred tax asset will not be realized, prepare the journal entry at the end of 2011 to record the valuation account.
Debit Income Tax Expense $XXXX
Credit XXXX $XXXX