Question

   The pretax financial income (or loss) figures for Jerry Springer Company are as

   follows.

               2009          $210,000

               2010            180,000

               2011            140,000

               2012           (220,000)

               2013           (230,000)

               2014              90,000

               2015            115,000

   Pretax financial income (or loss) and taxable income (or loss) were the same for all

years involved. Assume a 40% tax rate for 2009 and 2010 and a 35% tax rate for the

remaining years.

   Instructions:

      Prepare the journal entries for the years 2011 to 2015 (5 years) to record income tax

      expense and the effects of the net operating loss carry-backs and carry-forwards

      assuming Jerry Springer Company uses the carry-back provision. All income and

      losses relate to normal operations. (In recording the benefits of a loss carry-forward,

      assume that no valuation account is deemed necessary.)

Answer 1

Solution:

Income tax expenses for the year 2011

income tax expense = Taxable income x 35%

income tax expense = $140,000 x 35%

                              = $49,000

General journal
Date	Account Title and Explanation	Post Ref	Debit($)	Credit($)
2011	Income tax expense		49,000.00
	Income tax payable			49,000.00
	(Being tax is calculated and is a liability to be paid)

Income tax expenses for the year 2012

income tax refund receivable = Taxable loss x 40%

income tax expense = $220,000 x 40%

                              = $88,000

General journal
Date	Account Title and Explanation	Post Ref	Debit($)	Credit($)
2012	Income tax refund receivable		88,000.00
	Income tax refund due to loss carryback			88,000.00
	(To record the refund receivable.)

Income tax expenses for the year 2013

Benefit due to loss carry back (income tax expense)    = $140,000 x 35%

                               = $49,000

Benefit due to loss carry forward(income tax expense) = [($230,000 - $140,000) x 35%]

                                                                               = 31,500

General journal
Date	Account Title and Explanation	Post Ref	Debit($)	Credit($)
2013	Income tax expense		49,000.00
	Income tax payable			49,000.00
	(Being tax is calculated and is a liability to be paid)

General journal
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
2013	Deferred tax asset		31,500
	Income tax refund			31,500
	(To record the refund receivable)

Income tax expenses for the year 2014

Deferred tax asset

=90,000 x 35%

=31,500

General journal
Date	Account Title and Explanation	Post Ref	Debit($)	Credit($)
2014	Income tax expense		31,500.00
	Deferred tax asset			31,500.00
	(To record the deferred tax assets.)

Income tax expenses for the year 2015

deferred tax assets

=$115,000 x 35%

=$40,250

General journal
Date	Account Title and Explanation	Post Ref	Debit($)	Credit($)
2015	Income tax expense		40,250.00
	Deferred tax asset			40,250.00
	(To record the deferred tax assets)