Question
Blankenship Industries sells custom motorcycles. For GAAP purposes, Blankenship determines warranty expense for book purposes by estimating the amount that eventually will be paid to
Blankenship Industries sells custom motorcycles. For GAAP purposes, Blankenship determines warranty expense for book purposes by estimating the amount that eventually will be paid to satisfy warranties on the motorcycles sold. For tax purposes, warranty expense is recognized when the warranty work is completed. At 12/31/2023, Blankenship reports a warranty liability of $10 million and taxable income of $375 million. Blankenships 12/31/2022 Balance Sheet reported a deferred tax asset of $2,175,000 related to this difference. There were no other temporary differences, no permanent differences, and the beginning of year balance of the valuation allowance was zero. Assume a tax rate of 25%.
- Prepare the journal entry/entries to record 2023 income taxes, assuming it is more likely than not that the DTA will be realized in full.
- Prepare the journal entry/entries to record 2023 income taxes, assuming it is more likely than not that 20% of the DTA will be realized.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started