At the end of the preceding year, XYZ Inc. had a deferred tax asset of $17,500,000, attributable to its only temporary difference of $70,000,000 for estimated expenses. At the end of the current year, the temporary difference is $45,000,000. At the beginning of the year there was no valuation account for the deferred tax asset. At year-end, XYZ Inc. now estimates that it is more likely than not that one-third of the deferred tax asset will never be realized. Taxable income is $12,000,000 for the current year and the tax rate is 25% for all years. Required: In its current year balance sheet, what amount should XYZ report as income tax payable? In its current year balance sheet, what amount should XYZ report as deferred tax asset (net of the allowance)? In its current year income statement, what should XYZ report as income tax expense? In its current year income statement, what should XYZ report as net income? Prepare the journal entry to record XYZ's income tax expense for the current year.
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