Question

Concord Inc. reported the following pretax income (loss) and related tax rates during the years 2013–2019.

	Pretax Income (Loss)	Tax Rate
2013	$37,000	30%
2014	$24,700	30%
2015	$50,100	30%
2016	$81,000	40%
2017	($176,500)	45%
2018	$72,800	40%
2019	$109,800	35%

Pretax financial income (loss) and taxable income (loss) were the same for all years since Concord began business. The tax rates from 2016–2019 were enacted in 2016.

Prepare the journal entries for the years 2017–2019 to record income taxes payable (refundable), income tax expense (benefit), and the tax effects of the loss carryback and carryforward. Assume that Concord elects the carryback provision where possible and expects to realize the benefits of any loss carryforward in the year that immediately follows the loss year.

Prepare the portion of the income statement, starting with “Operating loss before income taxes,” for 2017.

Prepare the portion of the income statement, starting with “Income before income taxes,” for 2018.

Answer 1

Journal entries

Date	Account titles and explanation	Debit	Credit
2017	Income Tax Refund Receivable 2015 ($50100 × 30%)	15030
	Income Tax Refund Receivable 2016 ($81000 × 40%)	32400
	Benefit Due to Loss Carryback		47430
2017	Deferred Tax Asset [($176500-$50100-$81000) × 40%] = (45400*40%)	18160
	Benefit Due to Loss Carryforward		18160
2018	Income Tax Expense	29120
	Deferred Tax Asset		18160
	Income Tax Payable [($72800-45400) × 40%]		10960
2019	Income Tax Expense	38430
	Income Tax Payable ($109800 × 35%)		38430

2017 Income statement

Operating loss before income taxes		(176500)
Income tax benefit
Benefit due to loss carryback	47430
Benefit due to loss carryforward	18160	65590
Net loss		110910

2018 income statement

Income before income taxes		72800
Income tax expense
Current	10960
Deferred	18160	(29120)
Net income		43680