Question
Solutions Inc. reported a pretax operating loss of $540,000 for financial reporting purposes in 2019. Contributing to the loss were (a) a penalty of $20,000
Solutions Inc. reported a pretax operating loss of $540,000 for financial reporting purposes in 2019. Contributing to the loss were (a) a penalty of $20,000 assessed by the Environmental Protection Agency for violation of a federal law and paid in 2019 and (b) an estimated loss of $40,000 from accruing a loss contingency. The loss will be paid in 2020. The enacted tax rate is 40%. There were no temporary differences at the beginning of the year and none originating in 2019 other than those described above. Taxable income in Solutions Inc.s two previous years of operation was as follows:
2017 300,000
2018 120,000
Required:
1. Prepare the journal entry to recognize the income tax effect of the net operating loss in 2019. Solutions Inc. elects the carryback option.
2. Show the lower portion of the 2019 income statement that reports the income tax benefit of the net operating loss.
3. Prepare the journal entry to record income taxes in 2020 assuming pretax accounting income is $240,000. No additional temporary differences originate in 2020.
Please show work for all three. I am extremely confused.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started