On its December 31, 20X4, balance sheet, Shin Co. had income taxes payable of $13,000 and a deferred tax asset of $20,000 before determining the need for a valuation account. Shin had reported a deferred tax asset of $15,000 at December 31, 20X3. No estimated tax payments were made during 20X4. At December 31, 20X4, Shin determined that it was more likely than not that 10% of the deferred tax asset would not be realized. In its 20X4 income statement, what should Shin report as total income tax expense?
Income tax expense for the period = Current income tax payable + deferred tax liability for the year - Deferred tax asset for the year. Deferred tax asset for the year = Closing deferred tax asset for 20X4 less opening deferred tax asset for 20X4. Closing deferred tax asset after creating valuation account = $20,000 less 10% = $18,000. Thus deferred tax asset for the year = $18,000 - $15,000 = $3,000. Income tax expense for the period = Current income tax payable of $13,000 less deferred tax asset for the year of $3,000 = $10,000.