Purple Inc. incurred a net operating loss of $576,600 in 2020. Combined income for 2017, 2018, and 2019 was $455,700. The tax rate for all years is 30%. Assume that it is more likely than not that the entire tax loss carryforward will not be realized in future years. Assume that Purple Inc. earns taxable income of $21,200 in 2021 and that at the end of 2021 there is still too much uncertainty to recognize a deferred tax asset.

Prepare the journal entries that are necessary at the end of 2021 assuming that Purple does not use a valuation allowance account.

Prepare the journal entries that are necessary at the end of 2021 assuming that Purple does use a valuation allowance account.

Year Account Titles and Explanation Debit Credit 2021 (To record current tax expense) 2021 (To record current tax benefit) Year Account Titles and Explanation Debit Credit 2021 (To record deferred tax expense) 2021 (To bring the Deferred Tax Asset account to its realizable value)