Question
At the end of 2011, Sparkling Wine Company reported a pretax operating loss of $46,000 for both financial reporting and income tax purposes. In each
At the end of 2011, Sparkling Wine Company reported a pretax operating loss of $46,000 for both financial reporting and income tax purposes. In each of the years since Sparkling Wine began business in 2007, the company showed a profit and reported and paid taxes on the following pretax taxable income: $6,000 in 2007, $9,500 in 2008, $15,000 in 2009, and $19,000 in 2010. Sparkling Wine does not have evidence that it will be profitable in the future. The tax rate was 20% in 2007, 25% in 2008 and 2009, and 30% in 2010 and 2011, and no change has been enacted for future years.
- Prepare the income tax journal entries of the Keene Company at the end of 2011.
- Prepare the lower portion of Keene's 2011 income statement.
- How should the operating loss carryforward be disclosed in the 2011 financial statements?
- Assuming that Keene Company reports pretax income of $14,000 in 2012, prepare the income tax journal entry for the company at the end of 2012. Assume a 30% income tax rate.
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