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E19-14: Callaway Corp. has a deferred tax asset balance of $150,000 at the end of 2013...

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Accounting

E19-14: Callaway Corp. has a deferred tax assetbalance of $150,000 at the end of 2013 due to a single cumulativetemporary difference of $375,000. At the end of 2014, this sametemporary difference has increased to a cumulative amount of$450,000. Taxable income for 2014 is $820,000. The tax rate is 40%for all years. No valuation account is in existence at the end of2013.

  1. Record income tax expense, deferred income taxes, and incometaxes payable for 2014 assuming that it is more likely than notthat the deferred tax asset will be realized.
  2. Assuming that it is more likely than not that $30,000 of thedeferred tax asset will not be realized, prepare the journal entryat the end of 2014 to record the valuation account.
  3. What if Congress enacts a new tax rate equal to 35% effective1/1/15?

Answer & Explanation Solved by verified expert
4.4 Ratings (537 Votes)
Taxable Income for year 2014 820000Income tax payable on same 820000 x 40 328000aIncome tax expense Since there are same taxrates and no permanent differencesBook income x tax rate In 2013 there was a cumulative temporarydifference ie difference between book income and tax income of375000This difference created a    See Answer
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