Zeta Corporation reported taxable income for 2016 of $200,000. The enacted tax rate for 2016 is 40%. During 2016, Zeta became the defendant in a lawsuit. The lawsuit has not been resolved at the end of the period, but Zetas lawyers believe that it is probable that the company will be held liable. The legal office estimated that the amount of loss will be $80,000. As a result, the lawsuit has been recognized as a contingent liability. However, the legal obligation is not deductible for tax purposes during 2016. The lawsuit represents the only difference between financial income and taxable income for the year.

Required:

Assume that there is substantial doubt about whether Zeta Corporation will be profitable in future periods. As a result, the company believes that one-half of the future deduction for legal costs will not be realized. Record a journal entry to recognize tax expense, tax payable, and deferred tax for December 31, 2016.

PAGE 1 GENERAL JOURNAL Score: 32/49 DATE ACCOUNT TITLE POST. REF DEBIT CREDIT Dec. 31 Income Tax Expense Deferred Tax Asset Allowance to Reduce Deferred Tax Asset to Realizable Value Income Taxes Payable