Question:
Saginaw Inc. completed its first year of operations with a pretax loss of $500,000. The tax return showed a net operating loss of $600,000, which the company will carry forward. The $100,000 book-tax difference results from excess tax depreciation over book depreciation. Management has determined that they should record a valuation allowance equal to the net deferred tax asset. Assuming the current tax expense is zero and tax rate is 34 percent.
Prepare the journal entry to record the deferred tax consequences of the depreciation book-tax difference
Prepare the journal entry to record the deferred tax consequences of the valuation allowance.