Ledecky , Inc. began 2017 with the following balances in deferred tax accounts:
Deferred Tax Assets DTA - Valuation Allowance Deferred Tax Liabilities
$245 ,OOO (DR)
$30000 (CR)
$210000 (CR)
The deferred tax asset resulted from $700,000 of unearned revenue that was received in 2016, but will be earned for financial reporting purposes evenly across the next three years (2017, 2018 and 2019). The deferred tax liability resulted from the financial accounting bases of depreciable assets exceeding the tax bases of depreciable assets by $600,000 due to excess MACRS depreciation over straight-line in previous years.
Pre-tax accounting income in 2017 is $100,000 and includes non-taxable municipal bond interest of $50. During 2017 the temporary difference related to depreciation began to reverse as straight-line (financial) depreciation exceeded MACRS (tax) depreciation by $120,000. At the beginning of 2017 , Ledecky received another $150,000 in advance (unearned revenue) which is taxable in 2017, but will be earned evenly over 2017-2020 for financial accounting purposes.
At the end of 2017 , management estimated that the DTA — Valuation Allowance account should have a balance of 10% of the balance in Deferred Tax Assets.
The tax rate was 35% for 2017 , but during 2017 Congress changed the applicable tax rate to 21% for 2018 and all subsequent years.
Required:
a) Calculate taxable income and income taxes payable for 2017.
b) Calculate the balances in Deferred Tax Asset, Deferred Tax Liabilities, and DTA - Valuation Allowance as of 12/31/17.
c) Determine Income Tax Expense or Benefit for 2017.
d) Record the journal entry for income tax recognition that would be made as of the end of 2017.