(NOL Carryback and Carryforward, Valuation Account Needed) Meyer reported the following pretax financial income (loss) for the years 2005-2009.

Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate was 34% for 2005 and 2006, and 40% for 2007-2009. Assume the carryback provision is used first for net operating losses.
Instructions

(a) Prepare the journal entries for the years 2007-2009 to record income tax expense, 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-fifth of the benefits of the loss carryforward will not be realized.

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

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2005 $240,000 2006 350,000 2007 120,000 2008 (570,000) 2009 180,000