Pocus Inc. reports warranty expense when related products are sold. For tax purposes, the warranty costs are deductible as incurred. At the end of the current year, Pocus has a warranty liability of $500,000 and taxable income of $50,000,000. At the beginning of the current year, Pocus reported a deferred tax asset of $210,000 related to the difference in reporting warranty expense, its only temporary difference. The enacted tax rate is 25% each year.
Required: Prepare the appropriate journal entry for Pocus to record the income tax provision for the current year. Show well-labeled computations to support the three amounts in your journal entry.
| Income tax expense (to balance) | 12,585,000 |
| Deferred tax asset |
| [($500,000 × 25%) - $210,000]] | 85,000 |
| Income tax payable ($50,000,000 × 25%) | 12,500,000 |
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