(Explain Future Taxable and Deductible Amounts, How Carryback and Carryforward Affects Deferred Taxes) Mary Joe Fernandez and Meredith McGrath are discussing accounting for income taxes.

They are currently studying a schedule of taxable and deductible amounts that will arise in the future as a result of existing temporary differences. The schedule is as follows.

Instructions

(a) Explain the concept of future taxable amounts and future deductible amounts as illustrated in the schedule.

(b) How do the carryback and carryforward provisions affect the reporting of deferred tax assets and deferred tax liabilities?

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Current Year 2007 Taxable income $850,000 Taxable amounts Deductible amounts Enacted tax rate 2008 2009 Future Years 2010 2011 $375,000 $375,000 $ 375,000 $375,000 (2,400,000) 50% 45% 40% 35% 30%