The pretax financial income (or loss) figures for Kingbird Company are as follow

Question

The pretax financial income (or loss) figures for Kingbird 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 2012 and 2013 and a 40% tax rate for the remaining years.

Prepare the journal entries for the years 2014 to 2018 to record income tax expense and the effects of the net operating loss carrybacks and carryforwards assuming Kingbird 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.) (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.)

Account Titles and Explanation

Debit

Credit

2014

2015

2016

(To record carryback.)

(To record carryforward.)

2017

2018

2012 $169,000 2013 247,000 2014 79,000 2015 (169,000 ) 2016 (356,000 ) 2017 131,000 2018 99,000

Explanation / Answer

SOLUTION

Date Accounts title and Explanations Debit ($) Credit ($) 2014 Income Tax Expense ($79,000*40%) 31,600 Income Tax Payable 31,600 (To record income tax expense) 2015 Income Tax Refund Receivable ($169,000*45%) 76,050   Benefit Due to Loss Carryback 76,050 2016 Income Tax Refund Receivable 31,600 Benefit Due to Loss Carryback 31,600 (To record carryback) Deferred Tax Asset [($356,000-$79,000)*40%] 110,800 Benefit Due to Loss Carryforward 110,800 (To record carryforward) 2017 Income Tax Expense ($131,000*40%) 52,400   Deferred Tax Asset 52,400 2018 Income Tax Expense ($99,000*40%) 39,600   Deferred Tax Asset 39,600

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