Question 3

Starlight reported the following pretax financial income (loss) for the years 20182021.

		Pretax Income (Loss)		Tax Rate
2018		330,000		35%
2019		(60,000)		35%
2020		(800,000)		21%
2021		30,000		21%

Pretax financial income (loss) and taxable income (loss) were the same for all years involved.

Instruction

Prepare the journal entries for the years 2019 to 2021 to record income tax expense and the effects of the net operating loss carryforwards. Additionally, assume that based on the weight of available evidence, the company judged that more likely than not that one-fifth of the benefits of the loss carryforward will not be realized. (7 points)