Refer to the information provided about Roux Corp. in E18-28.
In E18-28
Roux Corp. had a Deferred Tax Asset account with a balance of $81,000 at the end of 2016 due to a single temporary difference of $270,000 related to warranty liability accruals. At the end of 2017, this same temporary difference has increased to $300,000. Taxable income for 2017 is $912,000. The tax rate is 30% for all years.
Instructions
(a) Assuming that it is more likely than not that $25,000 of the deferred tax asset will not be realized, prepare the journal entries to record income taxes for 2017. Roux uses a valuation allowance account.
(b) In 2018, the company's prospects improved. While there was no change in the temporary deductible differences underlying the Deferred 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 Deferred Tax Asset and related account(s).