Nielson Inc. reports the following pretax income (loss) for both book and tax purposes. (Assume the carryback provision is used where possible for a net operating loss.)

The tax rates listed were all enacted by the beginning of 2013.
Instructions

(a) Prepare the journal entries for years 2013–2016 to record income tax expense (benefit) and income taxes payable (refundable) and the tax effects of the loss carryback and loss carryforward, assuming that based on the weight of available evidence it is probable that one-half of the benefits of the loss carryforward will not be realized.

(b) Prepare the income tax section of the 2015 income statement, beginning with the line “Operating loss before income taxes.”

(c) Prepare the income tax section of the 2016 income statement, beginning with the line “Income before income taxes.”

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Year 2013 Pretax Income (Loss) Tax Rate 100,000 40% 2014 90,000 40% 2015 (240,000) 45% 2016 120,000 45%