Violet, Inc. recorded a deferred tax asset of $35,000 due to a basis difference in warranty liabilities. Management has assessed that it is more likely than not that the firm will not realize 35% of the deferred tax asset. What is the necessary journal entries to record the valuation allowance?
A)
Income Tax Expense
12,250
Valuation Allowance for Deferred Asset
12,250
B)
Deferred Tax Asset
12,250
Valuation Allowance for Deferred Asset
12,250
C)
Income Tax Expense
35,000
Valuation Allowance for Deferred Asset
35,000
D)
Deferred Tax Asset
35,000
Valuation Allowance for Deferred Asset
35,000
Answer: A
Explanation: A) $35,000 × 35% Note: for classification purposes, the valuation allowance is allocated proportionately between current and noncurrent portions of the deferred tax asset if applicable.
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