Exercise 19-24 Novak Inc. reports the following pretax income (loss) for both bo

Question

Exercise 19-24 Novak Inc. reports the following pretax income (loss) for both book and tax purposes. (Assume the carryback provision is used where possible for a net operating loss.) Pretax Income (Loss) Year 2015 2016 2017 2018 $120,000 89,000 (302,000) 117,000 Tax Rate 40 % 40% 45 % 45 % The tax rates listed were all enacted by the beginning of 2015 Prepare the journal entries for years 2015-2018 to record income tax expense (benefit) and income taxes payable (refundable), and the tax effects of the loss carryback and 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 a Explanation Debit Credit 2015 2016 2017 (To record refund.) (To record alowance.) 2018

Explanation / Answer

Date Account Titles and Explanation Debit Credit 2015 Income Tax Expense 48000 Income Tax Payable 48000 [120,000*40%] 2016 Income Tax Expense 35600 Income Tax Payable 35600 [89,000*40%] 2017 Income Tax Refund Receivable [(120,000+89000)*40%] 83600 Deferred Tax Asset [302000 - 120000-89000) *45% 41850 Benefit due to Loss Carryback 83600 Benefit due to Loss Carryforward 41850 (To record refund) Benefit due to Loss Carryforward [41850*50%] 20925 Allowance to Reduce Deferred Tax Asset to Expected Realizable Value 20925 (To record allowance) 2018 Income Tax Expense [117000*45%] 52650 Deferred Tax Asset 41850 Income Taxes Payable [Bal. fig.] 10800 (To record income taxes) Allowance to Reduce Deferred Tax Asset to Expected Realizable Value 20925 Benefit due to Loss Carryforward 20925 Operating Loss before income taxes -3,02,000 Income Tax Benefits Benefit due to loss carry back 83600 Benefit due to loss carry forward 20925 104525 Net Loss -197475

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