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.

Kindly check the explanation section.

Explanation:

So, we are given the following data or parameters in this particular Question which is going to help us in solving this particular Question.

=> the taxable income = $12,000,000 for the current year.

=> the tax rate is 25% for all years.

=> deferred tax asset = $17,500,000.

=> The temporary difference = $70,000,000 for estimated expenses. => "At the end of the current year, the temporary difference is $45,000,000."

So, let us dive straight into the solution;

Step one: calculate or Determine the income tax expense.

So, we have ( $45,000,000 × 25%) - $17,500,000 = − $6,250,000. This is recorded in the credit side as $6,250,000.

Step two: Determine the income tax payable.

=> taxable income × tax rate for all years = 12,000,000 × 25% = 3,000,000. This is recorded at the credit side.

Step three: Determine the valuation allowance in deferred.

The valuation allowance in deferred = 1/3[ 45,000,000 × 24] = 3,750,000. This is also recorded in the Credit side.

you have to put the parentheses like this:

in fact, you have to perform the operation inside parentheses first, and then proceed in order: