(NOL Carryforward, Valuation Account versus No Valuation Account) Spamela Hamderson Inc. reports the following pretax income (loss) for both financial reporting purposes and tax purposes.

Year Pretax Income (Loss) Tax Rate

2023 $120,000 17%

2024 90,000 17

2025 (200,000) 19

2026 300,000 19

The tax rates listed were all enacted by the beginning of 2023. Instructions

A. Prepare the journal entries for the years 20232026 to record income tax expense (benefit) and income taxes payable (refundable) and the tax effects of the loss carryforward, assuming that at the end of 2025 the benefits of the loss carryforward are judged more likely than not to be realized in the future.

B. Using the assumption in (a), prepare the income tax section of the 2025 income statement beginning with the line Operating loss before income taxes.

C. Prepare the journal entries for 2025 and 2026, assuming that based on the weight of available evidence, it is more likely than not that one-fourth of the benefits of the loss carryforward will not be realized.

D. Using the assumption in (c), prepare the income tax section of the 2025 income statement beginning with the line Operating loss before income taxes.