Ayayai Inc. reports the following incomes (losses) for both book and tax purpose
ID: 2561684 • Letter: A
Question
Ayayai Inc. reports the following incomes (losses) for both book and tax purposes (assume the carryback provision is used where possible):
The tax rates listed were all enacted by the beginning of 2014.
A) Prepare the journal entries for each of the years 2014 to 2017 to record income taxes, assuming at December 31, 2016, that it was more likely than not that the company would not be able to benefit from the remaining losses available to carryforward
B) Prepare the income tax section of the income statements for each of the years 2014 to 2017, beginning with the line “Income (loss) before income tax.”
Accounting Income Year (Loss) Tax Rate 2014 $140,000 25 % 2015 111,000 25 % 2016 (321,000 ) 30 % 2017 52,000 30 %Explanation / Answer
Solution –
Journal Entries –
Year
Description
Debit
Credit
2014
Income Tax Expense
35,000
Income Tax Payable
35,000
($140,000 * 25%)
2015
Income Tax Expense
27,750
Income Tax Payable
27,750
($111,000 * 25%)
2016
Income Tax Refund Receivable
62,750
Deferred Tax Asset
21,000
Benefit Due to loss Carry back
62,750
Benefit Due to Loss Carry forward
21,000
(Since the carry back provision is used, the current year loss need to be setoff against previous years income and create deferred tax asset on carry forward loss)
($321,000 - $140,000 - $111,0000)* 0.30 = $21,000
($35,000 + $27,750 = $62,750)
2017
Income Tax Expense
15,600
Deferred Tax Asset
15,600
($52,000 * 30% = $15,600)
Solution –
Partial Income Statement for 2014
Amount
Amount
Income before income tax
140,000
Less -
Income Tax Expense
- 35,000
Net Income
105,000
Partial Income Statement for 2015
Amount
Amount
Income before income tax
111,000
Less -
Income Tax Expense
- 27,750
Net Income
83,250
Partial Income Statement for 2016
Amount
Amount
Income before income tax
- 321,000
Income tax benefit
Benefit due to loss carry back
62,750
Benefit due to loss carry forward
21,000
Net Loss
- 237,250
Partial Income Statement for 2017
Amount
Amount
Income before income tax
52,000
Less -
Income Tax Expense
- 15,600
Net Income
36,400
Year
Description
Debit
Credit
2014
Income Tax Expense
35,000
Income Tax Payable
35,000
($140,000 * 25%)
2015
Income Tax Expense
27,750
Income Tax Payable
27,750
($111,000 * 25%)
2016
Income Tax Refund Receivable
62,750
Deferred Tax Asset
21,000
Benefit Due to loss Carry back
62,750
Benefit Due to Loss Carry forward
21,000
(Since the carry back provision is used, the current year loss need to be setoff against previous years income and create deferred tax asset on carry forward loss)
($321,000 - $140,000 - $111,0000)* 0.30 = $21,000
($35,000 + $27,750 = $62,750)
2017
Income Tax Expense
15,600
Deferred Tax Asset
15,600
($52,000 * 30% = $15,600)
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.