White Industries started their operations on January $1,$ Year $1$ and recorded $$400,000$ in warranty expense during the year. Warranty expense was the only difference between the company's pretax financial income and its tax return income of $$900,000.$ White will be required to pay these warranties at a rate of $$100,000$ per year beginning in Year $2.$ Although White fully expects to earn in excess of $$100,000$ in Year $2$ and Year $3,$ the company believes it is more likely than not that it will incur a loss after Year $3.$ The enacted tax rate is $25\%$ in current and future periods. What will White record as its income tax expense in Year $1?$

$$100,000$ $$125,000$ $$175,000$ $$225,000$

Solution

White's current provision for income taxes will equal the amount

of the current taxes payable, net of the deferred tax assets associated with the

temporary difference related to recorded warranties, and adjusted for the valuation

allowance:The Answer is $$175,000$

Note:

Please provide detail explanation on each step of calculation, along with details on the reasons behind creation of VALUATION Account.

"Simple words detail explanation".