Lance Lawn Services reports warranty expense by estimating the amount that eventually will be paid to satisfy warranties
Posted: Thu May 05, 2022 5:45 am
Lance Lawn Services reports warranty expense by estimating the
amount that eventually will be paid to satisfy warranties on its
product sales. For tax purposes, the expense is deducted when the
warranty work is completed. At December 31, 2021, Lance has a
warranty liability of $4 million and taxable income of $85 million.
At December 31, 2020, Lance reported a deferred tax asset of
$600,000 related to this difference in reporting warranties, its
only temporary difference. The enacted tax rate is 25% each
year.
Prepare the appropriate journal entry to record Lance’s income
tax provision for 2021. (If no entry is required for a
transaction/event, select "No journal entry required" in the first
account field. Enter your answers in whole dollars.)
amount that eventually will be paid to satisfy warranties on its
product sales. For tax purposes, the expense is deducted when the
warranty work is completed. At December 31, 2021, Lance has a
warranty liability of $4 million and taxable income of $85 million.
At December 31, 2020, Lance reported a deferred tax asset of
$600,000 related to this difference in reporting warranties, its
only temporary difference. The enacted tax rate is 25% each
year.
Prepare the appropriate journal entry to record Lance’s income
tax provision for 2021. (If no entry is required for a
transaction/event, select "No journal entry required" in the first
account field. Enter your answers in whole dollars.)