Exercise 19-9 The pretax financial income (or loss) figures for Jenny Spangler C

Question

Exercise 19-9

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

Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 45% tax rate for 2009 and 2010 and a 40% tax rate for the remaining years.

Prepare the journal entries for the years 2011 to 2015 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.)

2009 $180,600 2010 267,000 2011 87,700 2012 (180,600) 2013 (384,100) 2014 131,400 2015 110,900

Explanation / Answer

2011

Pretax financial income = 87700

There is no temprorary difference , so there would be no deffered tax

Income tax Expenses & Income Tax liability = 87700*40% = $ 35080

Journal Entry

2012

Pretax financial income = -180600

There is no temprorary difference other than the current year losses

Tax Liability = 0

Deffered Tax Asset to be created = 180600*40% = 72240

Income Tax Expenses = -180600*40% =- 72240

Journal Entry

2013

Pretax financial income = -384100

There is no temprorary difference other than the current year losses

Tax Liability = 0

Additional Deffered Tax Asset to be created = 384100*40% = 153640

Income Tax Expenses = -384100*40% = -153640

Journal Entry

2014

Pretax financial income = 131400

There is no temprorary difference other than carry over losses adjusted

Total carry over losses = 564700

Income Tax liability = (131400-131400) *40% = 0

After adjusting , still remain carry over losses = 564700-131400 = 433300

Deffered Tax Asset to be reversed = 131400*40% = 52560

Income Tax Expenses = 131400*40% = 52560

Journal Entry

2015

Pretax financial income = 110900

There is no temprorary difference other than carry over losses adjusted

Total carry over losses = 433300

Income Tax liability = (110900-110900) *40% = 0

After adjusting , still remain carry over losses = 433300-110900 = 322400

Deffered Tax Asset to be reversed = 110900*40% = 44360

Income Tax Expenses = 110900*40% = 44360

Journal Entry

Account Title & Explaination Debit Credit Income Tax Expenses 35080 Income Tax Payable 35080

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