Question 4:

During 2021, its first year of operations, Baginski Steel Corporation reported a net operating loss of $432,000 for financial reporting and tax purposes. The enacted tax rate is 25%. Required:

1. Prepare the journal entry to recognize the income tax benefit of the net operating loss. Assume the weight of available evidence suggests that future taxable income will be sufficient to benefit from future deductible amounts arising from the net operating loss carryforward.

2. Show the lower portion of the 2021 income statement that reports the income tax benefit of the net operating loss.

Question 5:

Case Development began operations in December 2021. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the installment method. 2021 installment income was $924,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 20222024 are as follows:

2022	$	320,000	20	%
2023		332,000	25
2024		272,000	25

Case also had product warranty costs of $386,000 expensed for financial reporting purposes in 2021. For tax purposes, only the $92,000 of warranty costs actually paid in 2021 was deducted. The remaining $294,000 will be deducted for tax purposes when paid over the next three years as follows:

2022	$	110,000
2023		96,000
2024		88,000

Pretax accounting income for 2021 was $1,038,000, which includes interest revenue of $28,000 from municipal bonds. The enacted tax rate for 2021 is 20%. Required: 1. Assuming no differences between accounting income and taxable income other than those described above, prepare the appropriate journal entry to record Cases 2021 income taxes. 2. What is Cases 2021 net income?