In 2015,HD had reported a deferred tax asset of $90 million with no valuation allowance.At December 31,2016,the account balances of HD Services showed a deferred tax asset of $120 million before assessing the need for a valuation allowance and income taxes payable of $80 million.HD determined that it was more likely than not that 30% of the deferred tax asset ultimately would not be realized.HD made no estimated tax payments during 2016.What amount should HD report as income tax expense in its 2016 income statement?

Question

Quizplus · Accepted Answer

The amount of the deferred tax asset that is expected to be realized is $84 million ($120 million x 70%). Therefore, the valuation allowance for the deferred tax asset is $36 million ($120 million - $84 million). The income tax expense is the sum of the income taxes payable and the change in the valuation allowance, which is $86 million ($80 million + $36 million).

In 2015,HD Had Reported a Deferred Tax Asset of $90