Reference no: EM132841255

At the end of the preceding year, XYZ Inc. had a deferred tax asset of $17,500,000, attributable to its only temporary difference of $70,000,000 for estimated expenses. At the end of the current year, the temporary difference is $45,000,000. At the beginning of the year there was no valuation account for the deferred tax asset. At year-end, XYZ Inc. now estimates that it is more likely than not that one-third of the deferred tax asset will never be realized. Taxable income is $12,000,000 for the current year and the tax rate is 25% for all years.

Required:

Problem 1: In its current year balance sheet, what amount should XYZ report as income tax payable?

Problem 2: In its current year balance sheet, what amount should XYZ report as deferred tax asset (net of the allowance)?

Problem 3: In its current year income statement, what should XYZ report as income tax expense?

Problem 4: In its current year income statement, what should XYZ report as net income?

Problem 5: Prepare the journal entry to record XYZ's income tax expense for the current year.