Sax Inc. reported the following pretax income (loss) for both financial reporting purposes and tax purposes. 2016: $132,000; 2017: $108,000; 2018: $(312,000). The tax rate is 30% in 2016-2017, and 35% in 2018 and future years. Assume the carryback provision is used for a net operating loss. The tax rates listed were all enacted by the beginning of 2016.

Prepare the journal entries for 2018, assuming that based on the weight of available evidence, it is probable that one-fifth of the benefits of the loss carryforward will not be realized. 8 marks