Bronson Industries reported a deferred tax liability of $5 million for the year ended December 31, 2020, related to a temporary difference of $20 million. The tax rate was 25%. The temporary difference is expected to reverse in 2022, at which time the deferred tax liability will become payable. There are no other temporary differences in 2020–2022. Assume a new tax law is enacted in 2021 that causes the tax rate to change from 25% to 15% beginning in 2022. (The rate remains 25% for 2021 taxes.) Taxable income in 2021 is $30 million.
Required:
Determine the effect of the tax rate change and prepare the appropriate journal entry to record Bronson’s income tax expense in 2021. What effect, if any, will enacting the change in the 2022 tax rate have on Bronson’s 2021 net income?