Module Problem-Solution Assignment:
Problem 1
Brogan, Inc., reports bad debt expense using the allowance method. For tax purposes the direct write-off method is used. At the end of the current year, Brogan has accounts receivable and an allowance for uncollectible accounts of $4,000,000 and $300,000, respectively, and taxable income of $22,000,000. At the end of the previous year, Brogan reported a deferred tax asset of $90,000 related to the difference in reporting bad debts, its only temporary difference. The enacted tax rate is 35% each year.
Requirements:
Prepare the appropriate journal entry for Brogan to record the income tax provision for the current year. Show well-labeled supporting computations.
Problem 2
At the end of the prior year, Tasha Inc. had a deferred tax asset of $21,000,000 attributable to its only timing difference, a temporary difference of $48,000,000 in a liability for estimated expenses. At that time a valuation allowance of $3,000,000 was established. At the end of the current year, the temporary difference is $47,000,000, and Tasha determines that the balance in the valuation account should now be $4,000,000. Taxable income is $18,000,000 and the tax rate is 35% for all years.
Requirements:
Prepare journal entries to record Tasha's income tax expense for the current year. Show well-labeled supporting computations for the income tax payable, the valuation allowance, and the change in the deferred tax asset account.