Marshall Corp. had a future tax asset account with a balance of $101,500 at the end of 2007 due to a single temporary difference of $290,000 related to warranty liability accruals. At the end of 2008, this same temporary difference has increased to $315,000. Taxable income for 2008 is $887,000. The tax rate is 35% for all years
a) Calculate and record income taxes for 2008, assuming that it is more likely that not that the future tax asset will be realized
1. Assuming that it is more likely than not that $30,000 of the future tax asset will not be realized, prepare the journal entries to record income taxes for 2008. Marshall does not use a valuation allowance account.
2. In 2009, prospects for the company improved. While there was no change in the temporary deductible differences underlying the future tax asset account, it was now considered more likely than not that the company would be able to make full use of the temporary differences. Prepare the entry, if applicable, to adjust the future tax asset account.
The solution is attached.
Income tax expense 301,700
Deferred tax assets[(315,000-290,000)*35%] 8,750
Income tax payable(887,000*35%) 310,450
FASB Statement No. 109 requires the deferred tax asset be reduced by a valuation allowance (a contra account ...
The amounts to be realized for Marshall Corp future tax assets are examined.