Sharp Ltd (SL) began operations in 2011, manufacturing flutes. In the first 4 years of operations, they were taxable however in their fifth year of operation (2015), they had a loss due to significant problems with the materials they had purchased to manufacture the flutes. Prior to
2015, the taxable incomes and tax rates reported by SL were as follows:

In 2015, the company had a loss on the Statement of Comprehensive income in the amount of
$200,000 Included in this loss was an amount of dividends received by SL in the amount of
$20,000 that were tax free, there are no temporary differences in either year, as the company
Does not have any fixed assets as it leases from a related company all manufacturing equipment
Require to manufacture the flutes. The tax rate in 2015 is 25%. Company management has determined in 2015 that they will carry back the loss to the extent possible under the Income Tax Act and recover taxes paid in prior years. The remaining loss, management feels will be able to be used in the carry forward period, so the company makes the decision to book the deferred taxes associated with the loss carry forward. There are no other temporary or timing differences in 2015.
Required:
1. Prepare the journal entry for 2015 to record the loss carry back and the recognition of the loss carry forward. A deferred tax table is attached for use in this question if you wish
2. It is now 2016 and the company recognized net income on its financial statements in the amount of$50,000 which is also taxable income. The company uses $50,000 of the loss carry forward from 2015 to reduce taxes payable to nil in 2016. The tax rate in 2016 is 30%. The company still considers the loss carry forward to be able to be used in the future.
Prepare the 2016 journal entry to record the tax provision for 2016.
3. It is now 2017 and the company has had a tremendous year. They developed a brand new flute that is being used around the world by some great musicians and this has been great advertising for their product. Sales and profits soared in 2017. The 2017 net and taxable income was $750,000. The tax rate in 2017 was 25%.
Prepare the 2017 journal entry to record the tax provision for 2017.
4. Would your answer in Part 1 change if management had come to the conclusion that the loss would not be able to be used in the required loss carry forward period?

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Tax rate Taxable income $50,000 2011 20% 30% 2012 $20,000 2013 S35,000 25% 2014 28% $20,000