Ross Company has been in business for several years, during which time it has been profitable. For each of those years, the company reported (and paid taxes on) taxable income in the same amount as pretax financial income based on the following revenues and expenses:

The company was subject to the following income tax rates during this period: 2003, 20%; 2004, 25%; 2005, 30%; and 2006, 25%. During 2007 the company experienced a severe decrease in the demand for its products. The company tried to offset this decrease with an expensive marketing campaign, but was unsuccessful. Consequently, at the end of 2007 the company determined that its revenues were $60,000 and its expenses were $193,000 during 2007 for both income taxes and financial reporting.
The company decided to carry back its 2007 operating loss because it was not confident it could earn taxable income in the future carryforward period. The income tax rate was 30% in 2007 and no change in the tax rate had been enacted for future years.
In 2008 the company developed and introduced a new product that proved to be in high demand. On June 1, 2008 the company received a refund check from the government based on the tax information it filed at the end of 2007. For 2008 the company reported revenues of $181,000 and expenses of $155,000 for both income taxes and financial reporting. The applicable income tax rate was 30%.
Required
1. Prepare the income tax journal entries of the Ross Company at the end of 2007.
2. Prepare the Ross Company€™s 2007 income statement. Include a note for any operating loss carryforward.
3. Prepare the journal entry to record the receipt of the refund check on June 1, 2008.
4. Prepare the income tax journal entry at the end of 2008.
5. Prepare the Ross Company€™s 2008 incomestatement.

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Revenues Expenses 2003 $182,000 150,000 2004 2005 2006 220,000 253,000 241,000 170,000 180,000 196,000 2