Recording Net Operating Loss Carryforward

In Year $1,$ Cardinals Company operated at a tax loss, totaling $($ $$44,000)$ during its first year of business.

a$.$ Assuming a tax rate of $25\%,$ and that income is expected in Year $2,$ record the entry to reflect the tax benefit of the net operating loss on December $31$ of Year $1.$

b$.$ Cardinals Company determined that it was more likely than not that $75\%$ of the deferred tax asset would not be realized. Prepare the entry to record a deferred tax asset valuation allowance, assuming a zero beginning balance in that account.

$$ Note: If a line in a journal entry isn't required for the transaction, in the last line of the journal entry, select $"$N$/$A$"$ as the account name and leave the Dr$.$ and Cr$.$ answers blank $($zero$).$

Date Account Name Dr$.$ Cr$.$

a$.$ Dec. $31$

Income Tax Expense

$0$

$0$

Answer

Deferred Tax Asset

$0$

$0$

Answer

Income Tax Payable

$0$

$0$

Answer

To record tax benefit of net operating loss

b$.$ Dec. $31$

$0$

$0$

Answer

$0$

$0$

Answer

To record allowance for deferred income tax