At December 31, 2009, the account balances of HD Services showed income taxes payable of $80 million and a deferred tax asset of $120 million before assessing the need for a valuation allowance. In 2008, HD had reported a deferred tax asset of $90 million with no valuation allowance. 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 2009. What amount should HD report as income tax expense in its 2009 income statement?

Question

Quizplus · Accepted Answer

The income tax expense for HD Services in 2009 can be calculated as follows:
Income tax expense = Income taxes payable + Increase in deferred tax asset - Increase in valuation allowance
Income tax expense = $80 million + ($120 million - $90 million) - (30% x $120 million)
Income tax expense = $86 million
Therefore, the correct answer is C.

At December 31, 2009, the Account Balances of HD Services