At the end of 2015, Payne Industries had a deferred tax asset account with a balance of $28 million attributable to a temporary book-tax difference of $80 million in a liability for estimated expenses. At the end of 2016, the temporary difference is $40 million. Payne has no other temporary differences. Taxable income for 2016 is $140 million and the tax rate is 35%.

Payne has a valuation allowance of $5 million for the deferred tax asset at the beginning of 2016.

Required:

1.
Prepare the journal entry(s) to record Paynes income taxes for 2016, assuming it is more likely than not that the deferred tax asset will be realized.

Record 2016 income taxes.

Record valuation allowance for the end of 2016.

2.
Prepare the journal entry(s) to record Paynes income taxes for 2016, assuming it is more likely than not that one-fourth of the deferred tax asset will ultimately be realized.

Record 2016 income taxes.

Record valuation allowance for the end of 2016.

Question

At the end of 2015, Payne Industries had a deferred tax asset account with a balance of $28 million attributable to a temporary book-tax difference of $80 million in a liability for estimated expenses. At the end of 2016, the temporary difference is $40 million. Payne has no other temporary differences. Taxable income for 2016 is $140 million and the tax rate is 35%.

Payne has a valuation allowance of $5 million for the deferred tax asset at the beginning of 2016.

Required:

1.

Prepare the journal entry(s) to record Paynes income taxes for 2016, assuming it is more likely than not that the deferred tax asset will be realized.

Record 2016 income taxes.

Record valuation allowance for the end of 2016.

2.	Prepare the journal entry(s) to record Paynes income taxes for 2016, assuming it is more likely than not that one-fourth of the deferred tax asset will ultimately be realized. Record 2016 income taxes. Record valuation allowance for the end of 2016.

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At the end of 2015, Payne Industries had a deferred tax asset account with a balance of $28 million attributable to a temporary book-tax difference

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