Questions #2

Zhao Inc. reports the following pre-tax incomes (losses) for both financial reporting purposes and tax purposes:

Year	Accounting Income (Loss)	Tax Rate
2018	$ 20,000	25%
2019	50,000	28%
2020	(150,000)	30%
2021	40,000	30%
2022	60,000	30%

The tax rates listed were all enacted by the beginning of 2018. Zhao reports under the IFRS deferred income taxes method and carries as much as tax loss back first.

Instructions

1. Assume that it is more likely than not that the carry forward benefits will be realized. Prepare the necessary journal entries to record Zhao income taxes for 2020 through 2022.
2. Based on your entries in part (a), prepare the income tax section of the income statements of 2020 through 2022, beginning with the line Income (loss) before income tax.
3. Notwithstanding the assumption in a), assume that at end of 2020, Zhao assessed that it is more likely than not that 25% of the carry forward benefits will not be realized. Prepare journal entry for Zhao to record income taxes of 2020, assuming that Zhao uses a valuation allowance account.