Violet inc., recorded a deferred tax asset of $43000 due to a book-tax difference in warranty liabilities. Management has assessed that it is more likely than not that the firm will not realize 35% of the deferred tax asset. What is the necessary "journal entry to record the valuation allowance"?

income tax expense $15,050  and

valuation allowance for deferred asset $15,050

Explanation:

A deferred tax asset is a tax reduction which is recognized as a delayed tax due to temporal deductible differences and carryforwards arising from the difference in accounting and tax rules which can lead to  a change in taxes payable or refundable in the long run.

it is always necessary for  businesses to create a valuation allowance for every deferred tax asset so as to prevent its carry forwards from expiring without usage or if that business estimates that it may encounter losses in the future.

Here, the Management has assessed that it is more likely than not that the firm will not realize 35% of the deferred tax asset.

therefore  we would find 35% of the deferred tax asset which is =

0.35 x $43000 =  $15,050

which would be recorded in the journal entry as

income tax expense $15,050  and

valuation allowance for deferred asset $15,050

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