Question

The pretax financial income (or loss) figures for Jenny Spangler Company are as follows:

2012: $160,000

2013: $250,000

2014: $80,000

2015: ($160,000)

2016: ($380,000)

2017: $120,000

2018: $100,000

Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 45% tax rate for 2012 and 2013 and a 40% tax rate for the remaining years.

Question: Prepare the journal entries for the years 2014 to 2018 to record income tax expense and the effects of the net operating loss carrybacks and carryforwards assuming Jenny Spangler Company uses the carryback provision. 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

Solution:-

Year	Account title and explanation	Debit	Credit
2014	Income tax expense	32,000
	Income taxes payable ($80,000 * 40%)		32,000
	(Entry to accrue taxes)
2015	Income Tax Refund Receivable ($160,000 X 45%)	72,000
	Benefit Due to NOL Carryback (Income Tax Expense)		72,000
	(Entry to CB 2015 NOL of $160,000 to 2013 NI)
2016	Income Tax Refund Receivable ($80,000 X 40%)	32,000
	Benefit Due to NOL Carryback (Income Tax Expense)		32,000
	(Entry to CB 2016 NOL of $350,000 to 2011 NI)
2016	Deferred Tax Asset [40% X ($380,000 – $80,000)]	120,000
	enefit Due to NOL Carryforward (Income Tax Expense)		120,000
	(Entry to CF remaining NOL of $300,000)
2017	Income Tax Expense	48,000
	Deferred Tax Asset (40% X $120,000)		48,000
	(Entry to CF 2016 NOL Remaining of $300,000 to 2017 NI)
2018	Income Tax Expense	40,000
	Deferred Tax Asset (40% X $100,000)		40,000
	(Entry to CF 2016 NOL Remaining of $180,000 to 2018 NI)