(NOL Carryback and Carryforward, Valuation Account Needed) Beilman 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 2005.
Instructions

(a) Prepare the journal entries for years 2005-2008 to record income tax expense (benefit) and income tax payable (refundable), and the tax effects of the loss carryback and loss carryforward, assuming that based on the weight of available evidence, it is more likely than not that one-half of the benefits of the loss carryforward will not be realized.

(b) Prepare the income tax section of the 2007 income statement beginning with the line “Operating loss before income taxes.”

(c) Prepare the income tax section of the 2008 income statement beginning with the line “Income before income taxes.”

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Year Pretax Income (Loss) Tax Rate 2005 $120,000 40% 2006 90,000 40% 2007 (280,000) 45% 2008 120,000 45%