Saginaw Incorporated completed its first year of operations with a pretax loss of $627,500. The tax return showed a net operating loss of $756,500, which the company will carry forward. The $129,000 book-tax difference results from excess tax depreciation over book depreciation. Management has determined that it should record a valuation allowance equal to the net deferred tax asset. Assuming the current tax expense is zero, prepare the journal entries to record the deferred tax provision and the valuation allowance. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) Required: a. Prepare the journal entry to record the deferred tax consequences for recognition of the current year NOL before considering the valuation allowance. b. Prepare the journal entry to record the deferred tax consequences of the depreciation book-tax difference. c. Prepare the journal entry to record the deferred tax consequences of the valuation allowance. No 1 2 3 Transaction b C Answer is complete but not entirely correct. Deferred tax asset Deferred tax benefit Deferred tax expense Deferred tax liability Deferred tax beneft Valuation allowance General Journal Debit 257,040 43,860 213,350 Credit 257,040 43,860 213,350
Saginaw Incorporated completed its first year of operations with a pretax loss of $627,500. The tax return showed a net operating loss of $756,500, which the company will carry forward. The $129,000 book-tax difference results from excess tax depreciation over book depreciation. Management has determined that it should record a valuation allowance equal to the net deferred tax asset. Assuming the current tax expense is zero, prepare the journal entries to record the deferred tax provision and the valuation allowance. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) Required: a. Prepare the journal entry to record the deferred tax consequences for recognition of the current year NOL before considering the valuation allowance. b. Prepare the journal entry to record the deferred tax consequences of the depreciation book-tax difference. c. Prepare the journal entry to record the deferred tax consequences of the valuation allowance. No 1 2 3 Transaction b C Answer is complete but not entirely correct. Deferred tax asset Deferred tax benefit Deferred tax expense Deferred tax liability Deferred tax beneft Valuation allowance General Journal Debit 257,040 43,860 213,350 Credit 257,040 43,860 213,350
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter2: Financial Statements, Cash Flow,and Taxes
Section: Chapter Questions
Problem 19P: The Bookbinder Company had 500,000 cumulative operating losses prior to the beginning of last year....
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Transcribed Image Text:Saginaw Incorporated completed its first year of operations with a pretax loss of $627,500. The tax return showed a net
operating loss of $756,500, which the company will carry forward. The $129,000 book-tax difference results from excess tax
depreciation over book depreciation. Management has determined that it should record a valuation allowance equal to the
net deferred tax asset. Assuming the current tax expense is zero, prepare the journal entries to record the deferred tax
provision and the valuation allowance. (If no entry is required for a transaction/event, select "No Journal Entry Required"
in the first account field.)
Required:
a. Prepare the journal entry to record the deferred tax consequences for recognition of the current year NOL before
considering the valuation allowance.
b. Prepare the journal entry to record the deferred tax consequences of the depreciation book-tax difference.
c. Prepare the journal entry to record the deferred tax consequences of the valuation allowance.
No
1
2
3
Transaction
C
Answer is complete but not entirely correct.
Deferred tax asset
Deferred tax benefit
Deferred tax expense
Deferred tax liability
Deferred tax benefit
Valuation allowance
General Journal
Debit
257,040
43,860
213,350
Credit
257,040
43,860
213,350
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