Income Taxes (F6)

Question 1

Valuation Account

Answer 1

Tax Liability
- Increase in deferred tax asset
+ Increase in valuation account (DTA * % Unrealizable)
= Income Tax Expense

Question 2

Income tax benefit

Answer 2

6,000 DTA / 30% tax rate = 20,000 NOL carryover
20,000 - 12,000 tax payable = 8,000 leftover
8,000 + (30,000 estimate - 10,000 warranty incurred)
= 28,000 * 30% tax rate
= 8,400 - 6,000 beg DTA
= 2,400 beenfit
* 20,000 warranty expense will be recognized for tax in future