Sondgeroth Ltd. reports the following pretax income (loss) for both financial reporting purposes and tax purposes.

The tax rates listed were all enacted by the beginning of 2020.

Instructions

a. Prepare the journal entries for the years 2020–2023 to record income tax expense (benefit) and income taxes payable (refundable) and the tax effects of the loss carryforward, assuming that at the end of 2022 it is probable that the benefits of the loss carryforward will be realized in the future.

b. Using the assumption in (a), prepare the income tax section of the 2022 income statement, beginning with the line “Operating loss before income taxes.”

c. Prepare the journal entries for 2022 and 2023, assuming that based on the weight of available evidence at 12/31/22, it is probable that one fourth of the benefits of the loss carryforward will not be realized.

d. Using the assumption in (c), prepare the income tax section of the 2022 income statement, beginning with the line “Operating loss before income taxes.”

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Year Pretax Income (Loss) Tax Rate 2020 £120,000 34% 2021 90,000 34% 2022 (280,000) 38% 2023 300,000 38%