Question

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

Year		Pretax Income (Loss)			Tax Rate
2018		$120,000			20	%
2019		90,000			20	%
2020		(80,000	)		25	%
2021		1,200,000			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, 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. (Credit account titles are automatically indented when 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
2018
2019
2020
	(To record income taxes.)
	(To record allowance.)
2021
	(To record income taxes.)
	(To adjust allowance.)

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Prepare the income tax section of the 2020 income statement beginning with the line “Operating loss before income taxes.” (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Beilman Inc. Income Statement (Partial)                                                                       December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020
DividendsExpensesIncome Tax BenefitCurrentDeferredNet Income / (Loss)Operating Loss before Income TaxesRetained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues		$
DividendsExpensesIncome Tax BenefitCurrentDeferredNet Income / (Loss)Operating Loss before Income TaxesRetained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
DividendsExpensesIncome Tax BenefitCurrentDeferredNet Income / (Loss)Operating Loss before Income TaxesRetained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
DividendsExpensesIncome Tax BenefitCurrentDeferredNet Income / (Loss)Operating Loss before Income TaxesRetained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues		$

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Prepare the income tax section of the 2021 income statement beginning with the line “Income before income taxes.” (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Beilman Inc. Income Statement (Partial)                                                                       December 31, 2021For the Year Ended December 31, 2021For the Quarter Ended December 31, 2021
CurrentDeferredDividendsExpensesIncome Tax Benefit Due to Loss CarrybackIncome Tax Benefit Due to Loss CarryforwardIncome Tax ExpenseNet Income / (Loss)Income before Income TaxesRetained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues				$
CurrentDeferredDividendsExpensesIncome Tax Benefit Due to Loss CarrybackIncome Tax Benefit Due to Loss CarryforwardIncome Tax ExpenseNet Income / (Loss)Income before Income TaxesRetained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
CurrentDeferredDividendsExpensesIncome Tax Benefit Due to Loss CarrybackIncome Tax Benefit Due to Loss CarryforwardIncome Tax ExpenseNet Income / (Loss)Income before Income TaxesRetained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
CurrentDeferredDividendsExpensesIncome Tax Benefit Due to Loss CarrybackIncome Tax Benefit Due to Loss CarryforwardIncome Tax ExpenseNet Income / (Loss)Income before Income TaxesRetained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues
CurrentDeferredDividendsExpensesIncome Tax Benefit Due to Loss CarrybackIncome Tax Benefit Due to Loss CarryforwardIncome Tax ExpenseNet Income / (Loss)Income before Income TaxesRetained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues				$

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Answer 1

SOLUTION:

JOURNAL ENTRIES:

DATE	ACCOUNTS TITLES AND EXPLANATION	DEBIT($)	CREDIT($)
2018	INCOME TAX EXPENSE A/C(120000*20%)	24000
	TO INCOME TAX PAYABLE A/C		24000
	(BEING INCOME TAX EXPENSE RECORDED)
2019	INCOME TAX EXPENSE A/C(90000*20%)	18000
	TO INCOME TAX PAYABLE A/C		18000
	(BEING INCOME TAX EXPENSE RECORDED)
2020	INCOME TAX REFUND RECEIVABLE A/C	42000
	DEFERRED TAX ASSET A/C	32500
	TO BENEFIT DUE TO LOSS CARRYBACK(24000+18000)		42000
	TO BENEFIT DUE TO LOSS CARRYFORWARD(80000-120000-90000)*25%		32500
	(BEING DEFERRED TAX ASSET AND INCOME TAX REFUND RECORDED)
	BENEFIT DUE TO LOSS CARRYFORWARD A/C	16250
	TO ALLOWANCE TO REDUCE DEFERRED TAX ASSET(32500*50%)		16250
	(BEING ONE HALF ALLOWANCE OF DEFERRED TAX ASSETS ADJUSTED)
2021	INCOME TAX EXPENSE A/C(1200000*25%)	300000
	TO DEFERRED TAX ASSET A/C		32500
	TO INCOME TAX PAYABLE BALANCING FIGURE		267500
	(BEING INCOME TAX EXPENSE RECORDED)
	ALLOWANCE TO REDUCE DEFERRED TAX ASSET A/C	16250
	TO BENEFIT DUE TO LOSS CARRYFORWARD		16250
	(BEING ALLOWANCE AS DEFERRED TAX ASSET HAS BEEN USED FULLY ADJUSTED)

INCOME TAX SECTION FOR 2020

OPERATING LOSS BEFORE INCOME TAXES		(80000)
ADD;INCOME TAX BENEFIT
BENEFIT DUE TO LOSS CARRYBACK	42000
BENEFIT DUE TO LOSS CARRYFORWARD	16250	58250
NET LOSS		(21750)

INCOME TAX SECTION FOR 2021

OPERATING LOSS BEFORE INCOME TAXES		1200000
ADD;INCOME TAX BENEFIT
BENEFIT DUE TO LOSS CARRYBACK	267500
BENEFIT DUE TO LOSS CARRYFORWARD	32500	300000
NET INCOME		900000