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Recording a Temporary Difference On December 31, for GAAP purposes, Clubs Inc. reported a balance of $400,000 in a warranty liability for anticipated costs to
Recording a Temporary Difference On December 31, for GAAP purposes, Clubs Inc. reported a balance of $400,000 in a warranty liability for anticipated costs to satisfy future warranty claims. The tax basis for the warranty liability is zero. No claims were paid during the year. The increase to income tax payable on December 31 is $850,000, and the tax rate is 25%. Assume no other differences between the tax basis and GAAP basis of assets and liabilities, or any beginning balances in deferred tax accounts. Required a. Record the income tax journal entry on December 31. Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr, and Cr, answers blank (zero). Date Account Name Dec. 31 Valuation Allowance for Deferred Tax Asset Deferred Tax Asset Income Tax Receivable To record income tax expense Dr. Cr. 212,500 100,000 0 0 0 x 0 212,500 x 0 x b. Assume that there was a January 1 beginning balance of $40,000 in the deferred tax asset account. How would your answer to part a change? Note: If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero). Date Dec. 31 Account Name Dr. Cr. 0 0 x 0 0x 0 0 x 0 0 x To record income tax expense G
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