Is the amount a debit or credit

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Reference no: EM13795339

Stephens Company has a deductible temporary difference of $2,000,000 at the end of its first year of operations. Its tax rate is 40 percent. Stephens has $1,800,000 of income taxes payable. At the end of the first year, after a careful review of all available evidence, Stephens determines that it is probable that it will not realize $200,000 of this deferred tax asset. At the end of the second year of operations, Stephens Company determines that it expects to realize $1,850,000 of this deferred tax assets. On Stephens Company’s income statement for the second year, what amount of income tax expense will it report related to the temporary difference, and is the amount a debit or credit?

$20,000 credit

$20,000 debit

$40,000 credit

$40,000 debit

Reference no: EM13795339

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