BI E19-10 (Two NOLs, No Temporary Differences, No Valuation Account, Entries and

Question

BI E19-10 (Two NOLs, No Temporary Differences, No Valuation Account, Entries and Income State- ment) Lanier Corporation has pretax financial income (or loss) equal to taxable income (or loss) from 2003 through 2011 as follows. 2004 2005 2006 2007 2008 2009 2010 2011 Income (Loss) $29,000 40,000 22,000 48,000 (150,000) 90,000 30,000 105,000 (50,000) Tax Rate 30% 30% 35% 50% 4096 4096 40% 4096 45% Pretax financial income (loss) and taxable income (loss) were the same for all years since Lanier has been in business. Assume the carryback provision is employed for net operating losses. In recording the benefits of a loss carryforward, assume that it is more likely than not that the related benefits will be realized. Instructions (a) What entry(ies) for income taxes should be recorded for 2007? (b) Indicate what the income tax expense portion of the income statement for 2007 should look like. Assume all income (loss) relates to continuing operations. (c). What entry for income taxes should be recorded in 2008? (d) How should the income tax expense section of the income statement for 2008 appear? (e) What entry for income taxes should be recorded in 2011? (0 How should the income tax expense section of the income statement for 2011 appear? fferences Classify Referred Taxes At December 31 2010, Cascade Comnany had

Explanation / Answer

Answer a. Journal Entry Date Particulars Dr. Amt. Cr. Amt. a-1 Income Tax Refund Receivable    31,700.00 ($22,000 X 35%) + ($48,000 X 50%)    Benefit Due to Loss Carryback        31,700.00 a-2 Deferred Tax Asset    32,000.00 [$150,000 - ($22,000 + $48,000)] X 40%    Benefit Due to Loss Carryforward        32,000.00 Answer b. Operating Loss before Income Tax (150,000.00) Income Tax Benefit: Benefit due to Loss Carryback    31,700.00 Benefit due to Loss Carryforward    32,000.00        63,700.00 Net Loss     (86,300.00) Answer c. Journal Entry Date Particulars Dr. Amt. Cr. Amt. c-1 Income Tax Expenses    36,000.00 $90,000 X 40%    Deferred Tax Asset        32,000.00    Income Tax Payable          4,000.00 ($90,000 - $80,000) X 40% Answer d. Income Before Income Tax        90,000.00 Income Tax Expense: Current      4,000.00 Deferred    32,000.00        36,000.00 Net Income        54,000.00 Answer e. Journal Entry Date Particulars Dr. Amt. Cr. Amt. e-1 Income Tax Refund Receivable    20,000.00 $50,000 X 40%    Benefit Due to Loss Carryback        20,000.00 Answer f. Operating Loss before Income Tax     (50,000.00) Income Tax Benefit: Benefit due to Loss Carryback        20,000.00 Net Income (Loss)     (30,000.00)

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