Question

E19.21 (LO 3) (Carryforward of NOL, No Valuation Account, No Temporary Diff erences) The pretax financial income (or loss) figures for Jenny Spangler Company are as follows.

(THERE ARE NO PRETAX FINANCIAL INFORMATION ABOUT 2015 AND 2016!)

2017 $80,000

2018 (160,000)

2019 (380,000)

2020 120,000

2021 100,000

Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 25% tax rate for 2015 and 2016, and a 20% tax rate for the remaining years.

Instructions

Prepare the journal entries for the years 2017 to 2021 to record income tax expense and the eff ects of the net operating loss carryforwards. All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.)

Answer 1

Answer :-

year	Accounts and explanation	Debit($)	Credit($)
2017	Income tax expense($80,000*20%)	16,000
	Income tax payable		16,000
	(To record tax payable on taxable income)
2018	Income tax refund receivable($160,000*25%)	40,000
	Benefit due to loss carry back		40,000
	(To record refund on account of loss carried back to 2016)
2019	Income tax refund receivable	16,000
	Benefit due to loss carry back		16,000
	(To record refund on account of loss carried back to 2016)
2019	Deferred tax Asset($380,000-$80,000)*20%	60,000
	Benefit due to loss carried forward		60,000
	(loss carried forward to future years
2020	Income tax expense(120,000*20%)	24,000
	Deferred tax Asset		24,000
	(To record tax payable for the year adjusted against tax credit)
2021	Income tax expense($100,000*20%)	20,000
	Deferred tax Asset		20,000
	(To record income tax expense)