In the current year, Alpha Corporation generated $500,000 of ordinary operating income and incurred a $20,000 capital loss on the sale of marketable securities from its investment portfolio. Alpha expects to generate $500,000 of ordinary operating income in each of the next five years. Alpha incurred no capital gains in its previous three years, so it must carry over the $20,000 capital loss for up to five years. Alpha estimates that its remaining marketable securities would produce a $12,000 capital gain if sold. Thus, Alpha determines that, more likely than not, the corporation will not realize (deduct) $8,000 of the current year capital loss. Alpha has no other book-tax differences and is subject to a 34% tax rate.
Required:
a. Determine Alpha’s deferred tax asset and valuation allowance for the current year.
b. Determine Alpha’s current federal income tax expense, deferred federal income tax expense (benefit), total federal income tax expense, and federal income taxes payable.
c. Prepare the journal entry necessary to record the above amounts.
d. Prepare a tax provision reconciliation and effective tax rate reconciliation for the current year.