Red Lantern Corp. reported a net deferred tax asset balance of $247,000 resulting from an estimated warranty expense accrual for book purposes. The enacted statutory tax rate related to this balance changed from 38% to 32%, effective immediately. Prepare the necessary journal entry to account for this change in tax rates.

What will be an ideal response?

Answer:
Income Tax Expense
39,000

Deferred Tax Asset

39,000
247,000 / 38% = 650,000; 650,000 × (38% – 32%)