Loo Corp. was incorporated in 20X5. Details of the company’s results are presented below:

Required:
1. Prepare journal entries for tax for 20X5, 20X6, and 20X7. Assume that realization of the benefit of the loss carryforward is probable in 20X6.
2. Repeat requirement 1, assuming that the tax rate is 40% in 20X5 but is changed to 42% in 20X6 and to 44% in 20X7. All tax rates are enacted in the year in which they are effective.
3. Revert to the facts of requirement 1 (i.e., 40% tax rate in each year). Assume that the use of the unused tax loss carryforward is considered to not be probable in 20X6 and is still not probable in 20X7 other than the loss carryforward actually utilized in 20X7. Provide journal entries for 20X5, 20X6, and 20X7.

Transcribed Image Text:

Earnings (loss) before tax Depreciation expense Capital cost allowance claimed Dividend Income (nontaxable) Tax rate Net book value, end of year UCC, end of year 20X5 $ 60,000 40,000 50,000 10,000 40% 360,000 350,000 20X6 ($200,000) 40,000 0 10,000 40% 320,000 350,000 20X7 $100,000 40,000 50,000 10,000 40% 280,000 300,000