At the end of 2020, Payne Industries had a deferred tax asset account with a balance of $125 million attributable to a temporary book-tax difference of $500 million in a liability for estimated expenses. At the end of 2021, the temporary difference is $384 million. Payne has no other temporary differences and no valuation allowance for the deferred tax asset. Taxable income for 2021 is $900 million and the tax rate is 25%.

Required:

1. Whats tax payable in 2021 (2 points)?
2. Does the firm have future taxable amounts or future deductible amounts in 2021 ?
3. What amount of deferred tax asset or deferred tax liability should be adjusted by the firm in 2021 ?
4. Based on your answers to a-c above, please prepare the appropriate journal entry to record the firms income taxes for 2021.
5. Assuming it is more likely than not that only 80% of the deferred tax asset ultimately will be realized, please prepare the journal entry to record the valuation allowance
6. Assume a new tax law is enacted in 2021 that causes the tax rate to change from 25% to 35% beginning in 2022. (The rate remains 25% for 2021 taxes.) Please prepare the appropriate journal entry to record the firms income taxes for 2021.