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nipson
Contributor

Joined: 01 Jun 2010
Online Status: Offline
Posts: 63

Posted: 30 Jun 2010 at 01:31 \| IP Logged

This is the only tax problem that bothered me so I
decided to post it...

At the end of the previous year, a firm reported a $6,000
deferred tax asset from a net operating loss carry
forward that can be carried forward several years into
the future. The tax rate is 30%. For the current year,
the firm recorded estimated warranty expense of $30,000
for the year and incurred $10,000 of warranty claims
costs. Taxable income for the current year is $12,000.
Compute income tax expense (benefit) for the current
year.

I know the answer is a benefit of 2400, but what am I
missing in the journal entry?? Does it need a Payable or
does the carryforward eliminate a payable?

Deferred Tax Asset 2400
Inc Tax Benefit 2400

1tryCPA
Major Contributor

Joined: 27 Jun 2010
Online Status: Offline
Posts: 337

Posted: 30 Jun 2010 at 16:41 \| IP Logged

I think the entries are :

Current tax expense $3,600
        Income tax payable    $3,600

this entry is for the tax on current year income

DTA $6,000
      Income tax deferred $6,000

this entry is for warranty differences originated this year

Income tax payable $3,600
      DTA         &nb sp;         &nb sp;        $3,600

this entry is to use carryforward loss tax benefit

if you combine them all together, it would be your entry.

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