Answer the following:

1. As of December 31, 2019 compute the following two amounts, assuming that an election is made to carry back any operating losses to the fullest extent possible under the law:

a. Taxes receivable due to Net Operating Loss Carryback, if any

b. Deferred tax asset due to Net Operating Loss Carryforward, if any

2. Beginning with pre-tax book income and making adjustments necessary to arrive at taxable income, compute ABC's 2020 taxable income before considering any net operating loss carryforward from Part 1.

3. Compute ABC's 2020 current income tax expense after considering any NOL carryforward.

4. Determine the TOTAL amount that should be reported in the deferred tax asset and deferred tax liability accounts as of the end of 2020. DTA DTL

5. FOR this question only, assume that the total deferred tax asset at 12/31/2019 was $15,000, and the total deferred tax liability at 12/31/2019 was $34,000. Prepare the journal entry necessary to properly record the tax expense for 2020, including both current and deferred tax expense.

6. Using information given in question 5, what is ABC's effective tax rate for 2020?

ABC has the following partial comparative balance sheets:

December 31, 2020 2019 Change

Current Assets

Accounts receivable

33,000 32,000 1,000

Prepaid expenses

10,000 4,000 6,000

Noncurrent Assets

Property, plant and equipment

100,000 100,000

Accumulated depreciation

(40,000) (20,000) (20,000)

Net PPE

40,000 60,000 (20,000)

Deferred tax asset - non current

? ?

Current Liabilities

Unearned revenue

2,000 10,000 (8,000)

Warranty liabilities

7,000 2,000 5,000

Noncurrent Liabilities

Deferred tax liability - noncurrent

? ?

Contingent Loss Environmental Litigation

150,000 100,000 50,000

Additional information:

1.ABC was founded in 2000 and has December 31 fiscal and tax year ends.

2.ABC taxable income for the last three years along with the tax rates for those years and future years are as follows:

Year. Tax Rate Taxable Income (Loss)

2016. 65%. 100,000

2017. 30%. 80,000

2018. 35% 42,000

2019 40%. (90,000)

2020 30%. ?

2021. 30%. ?

2022. 30% ?

thereafter 25%. ?

ABC wants to use the 2019 taxable loss as soon as possible to offset past and future income.At the time the operating loss was incurred, ABC's expected taxable income was $40,000 in 2020, $20,000 in 2021 and $50,000 in 2022.

3.ABC is on a cash basis for tax purposes except for fixed assets.For tax purposes, fixed assets are capitalized and depreciated using MACRS.In 2019 and 2020 the company accrued liabilities related to a lawsuit resulting from the release of coal ash slurry into a stream near its strip mine in Tennessee. These amounts are not deductible for tax purposes until paid. ABC plans to fight the lawsuit until appeals are exhausted. Because of this, the company does not expect to make payments related to the lawsuit until 2023 at the earliest.

4.The company owns equipment purchased on January 1, 2019 for $100,000.For book purposes, these assets are depreciated using straight-line depreciation over a five-year life with no salvage value.For tax purposes, fixed assets are depreciated under MACRS.

5.In 2019, ABC recorded pre-tax book income of $60,000.This included $8,000 of tax-free interest on municipal bonds and $5,000 of fines paid for violating environmental laws.

6.The following schedule shows the difference between tax depreciation and book depreciation for each year of the life of the equipment.

2019 2020 2021 2022 2023

Tax Depreciation

33,000 44,000 15,000 8,000 0

Accounting Depreciation

20,000 20,000 20,000 20,000 20,000

Difference (Tax - Book)

13,000 24,000 (5,000) (12,000) (20,000)