Question

Sheffield Inc. reports the following pretax income (loss) for both book and tax purposes.

Year		Pretax Income (Loss)			Tax Rate
2018		$113,000			20	%
2019		97,000			20	%
2020		(308,000	)		25	%
2021		117,000			25	%

The tax rates listed were all enacted by the beginning of 2018.

Prepare the journal entries for years 2018–2021 to record income tax expense (benefit) and income taxes payable (refundable), and the tax effects of the loss carryforward, assuming that based on the weight of available evidence, it is more likely than not that one-half of the benefits of the loss carryforward will not be realized

Answer 1

	Account Title and Explanation	Debit	Credit
2018	Income Tax (Expense)	22600		113000*20%
	Income tax payable		22600
2019	Income Tax (Expense)	19400		97000*20%
	Income tax payable		19400
2020	Income tax refund (Receivable)	42000
	Deferred tax assets	24500		(308000-210000)*25%
	Benefits due to Loss Carryback		42000
	Benefits due to Loss Carryforward		24500
2020	Benefits due to Loss Carryforward	12250
	Allowance to reduce DTA (Expected realizable value)		12250
2021	Income tax expense	29250
	deferred tax assets		24500
	Income tax payable		4750	(117000-(308000-(113000+97000)))*25%
2021	Allowance to reduce DTA (Expected realizable value)	12250
	Benefits due to Loss Carryforward		12250