In 2016, its first year of operations, Banks Corp. reported pretax income of $200,000 and paid $60,000 of taxes. In 2017, Banks Corp. reported pretax income of $150,000 and paid $45,000 of taxes.

 

In 2018, Banks incurred a $400,000 net operating loss. 

 

For all years the tax rate is 30% and there were no differences between taxable income and pretax financial statement income. Also, assume the current tax law (under the TCJA of 2017 that does not allow loss carrybacks).

 

Instructions

a. Record the entries in 2018 to record income tax considerations. (Assume at the end of 2018 management has deemed that it is more likely than not that 10% of the carryforward benefit will not be realized.)

b. In 2019, Banks reported pretax income of $550,000. Record the entries in 2019 to reflect all income tax considerations.

c. What is the net tax expense that Banks should report on the 2019 income statement?

 

d. Without showing calculations, explain how the entry for 2018 (part a.) would have been different under previous tax law.