Question

Ayayai Inc. reports the following pretax income (loss) for both financial reporting purposes and tax purposes. (Assume the carryback provision is used for a net operating loss.)

Year	Pretax Income (Loss)	Tax Rate
2015	123,000	34%
2016	86,000	34%
2017	(278,000)	38%
2018	237,000	38%

Prepare the journal entries for the years 2015–2018 to record income tax expense (benefit) and income taxes payable (refundable) and the tax effects of the loss carryback and carryforward, assuming that at the end of 2017 the benefits of the loss carryforward are judged more likely than not to be realized in the future.

Answer 1

Date	Account Tittles and Explanations	Debit ($)	Credit ($)
2015	Income Tax Expense A/c	41,820
	To Income Tax Payable A/c  [$123,000 x 34%]		41,820
2016	Income Tax Expense A/c	29,240
	To Income Tax Payable A/c [$86,000 x 34%]		29,240
2017	Income Tax Refund Receivable A/c	71,060
	Deferred Tax Asset A/c	26,220
	To Benefit Due to Loss Carry Back A/c [($123,000 + 86,000) x 34%]		71,060
	To Benefit Due to Loss Carry forward A/c [($278,000 -123,000 – 86,00) x 38%]		26,220
2018	Income Tax Expense A/c [$237,000 x 38%%]	90,060
	To Income Tax Payable A/c  [$90,060 – 26,220]		63,840
	To Deferred Tax Asset A/c		26,220