Joey Co. reported a deferred tax liability of $8 Million for the year ended December 31, 2014, related to a temporary difference of $20 Million. The tax rate is 40%. The temporary difference is expected to reverse in 2016 at which time the deferred tax liability will become payable. There are no other temporary differences in 2014-2016. Assume a new tax law is enacted in 2015 that causes the tax rate to change from 40% to 30% beginning in 2016. (The rate remains 40% for 2015 taxes.) Taxable income in 2015 is $30 million.
Required:
1) Determine the effect of the change and prepare the appropriate journal entry to record Joey Co.’s Income tax expense for 2015.