Austin Inc. reported the following pretax income (loss) and related tax rates du

Question

Austin Inc. reported the following pretax income (loss) and related tax rates during the years 2011–2017.

Year             Pretax Income (Loss) Tax Rate

2011                   $60,000                    40%

2012                   $45,000                    40%

2013                   $10,000                    30%

2014 $(140,000) 30%

2015                   $30,000                    30%

2016                   $60,000                    30%

2017                   $40,000                    35%

Pretax financial income (loss) and taxable income (loss) were the same for all years since Austin began business.

The tax rates from 2013–2017 were enacted in 2013.

Required: Show all calculations.

1. Prepare the journal entries for the years 2014–2016 to record income taxes payable (receivable), income tax expense (benefit), and the tax effects of the loss carryback and carryforward. Assume that Austin elects the carryback provision where possible and expects to realize the benefits of any loss carryforward in the year that immediately follows the loss year.

2. Prepare the portion of the income statement, starting with “Operating loss before income taxes,” for the year ended December 31, 2014.

3. Prepare a partial classified balance sheet as of December 31, 2014 showing the tax accounts and amounts.

4. Prepare the portion of the income statement, starting with “Income before income taxes,” for the year ended December 31, 2016.

Explanation / Answer

Pretax Income (loss) Tax Rate Income Tax Carryback from 2014 Taxable Income Carryover Revised Income tax Refund of tax throgh carryback DTA(carryforward) 2011 $60,000 40 % $24,000 2012 45,000 40 % $18,000 -45000 0 0 2013 10,000 30 % $3,000 -10000 0 0 2014 -140,000 40 % -85,000 -85000 0 2015 30,000 30 % $9,000 -19575 51020 -19575 2016 60,000 30 % $18,000 $9,225 2017 40,000 35 $14,000 a. particulars 2014 income tax Refund Receivables 2012 $18,000 income tax Refund Receivables 2013 3000 Benefit due to loss carry back 21000 deffered tax Asset 14000 Benefit due to loss carry forward 14000 2015 income tax expense 9000 deffered tax Asset 9000 income tax payable 9000 2016 income tax expense 18000 income tax payable 18000

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