Question

Concord Inc. reports the following incomes (losses) for both book and tax purposes (assume the carryback provision is used where possible):

		Accounting
		Income
Year--------		(Loss)------			Tax Rate
2014-------		$131,000---			25	%
2015-------		105,000---			25	%
2016------		(306,000)---			30	%
2017		46,000----			30	%

The tax rates listed were all enacted by the beginning of 2014.

1- Prepare the journal entries for each of the years 2014 to 2017 to record income taxes, assuming at December 31, 2016, that it was more likely than not that the company would not be able to benefit from the remaining losses available to carryforward. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

2014 (2 entries only)

2015 (2 entries only)

2016 (2 entries only)

2017 (2 entries only)

2- Prepare the income tax section of the income statements for each of the years 2014 to 2017, beginning with the line “Income (loss) before income tax.”. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any answer field blank. Enter 0 for amounts.)

   Concord Inc.

(Partial) Income Statements

(2014)

(2015)

(2016)

(2017)

Answer 1

Solution:-

1.

Year	Account titles and explanation	Debit	Credit
2014	Current Tax Expense	32,750
	Income Tax Payable ($131,000 X 25%)		32,750
2015	Current Tax Expense	26,250
	Income Tax Payable ($105,000 X 25%)		26,250
2016	Income Tax Receivable	59,000
	Current Tax Benefit (25% X ($131,000 + $105,000))		59,000

This leaves $306,000 - $236,000 = $70,000 of tax losses available for carryforward. No entry can be made to record any tax benefit from the remaining $70,000 of tax losses because it is not more likely than not that the company will actually benefit from them. However, the existence of the $70,000 loss carryforward should be disclosed in a note.

2017:-

In 2017, the company earned $46,000 of taxable income and it can deduct $46,000 of the $70,000 tax loss carryforward from this. They report a taxable income amount in 2017 of $-0-. Because they are still uncertain about being able to benefit from the remaining $24,000 of tax losses in the future, no entry is made to recognize the benefit in the year, but this amount must be disclosed in a note.Income tax expense in 2017 is $-0-.

Alternatively, both a current tax expense of $46,000 X 30% = $13,800 and acurrent tax benefit from previously unrecognized tax losses available for carryforward of $46,000 X 30% = $13,800 could both be recognized and reported.

2.

2014
Income (loss) before income tax	131,000
Income tax expense – current	32,750
Net Income	98,250
2015
Income (loss) before income tax	105,000
Income tax expense – current	26,250
Net income	78,750
2016
Income (loss) before income tax	(306,000)
Current tax benefit due to loss carryback	59,000
Net loss	(247,000)
2017
Income (loss) before income tax	46,000
Current tax expense	0
Current tax expense	46,000
Or, alternatively:
Income before income tax	46,000
Current tax expense	13,800
Current tax benefit from unrecognizedtax losses carried forward	(13,800)
Net income	46,000