Meyer reported the following pretax financial income (loss) for the years 2006–2010.
2006 .....$240,000
2007 .......350,000
2008 .......120,000
2009 ......(570,000)
2010 .......180,000
Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate was 34% for 2006 and 2007, and 40% for 2008–2010. Assume the carryback provision is used first for net operating losses.
Instructions
(a) Prepare the journal entries for the years 2008–2010 to record income tax expense, income tax 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-fifth of the benefits of the loss carryforward will not be realized.
(b) Prepare the income tax section of the 2009 income statement beginning with the line “Income (loss) before income taxes.”