Tattoo Inc. reports the following pre-tax incomes (losses) for both financial reporting purposes and tax purposes: Year Accounting Income (Loss) Tax Rate 2019 $ 110,000 25% 2020 (250,000) 27% 2021 150,000 28% The tax rates listed were all enacted by the beginning of 2019. Parker reports under the ASPE and uses future tax methods and elects to use the carryback provisions.

Instructions

a. Assume that it is more likely than not that all carry forward benefits will be realized. 1. Prepare the journal entries for 2019 to 2021. 2. Based on your entries in part (a), prepare the income tax section of 2019 to 2021 income statements, beginning with the line “Income (loss) before income tax.”

b. Notwithstanding the assumption in a), assume that at end of 2020, Tattoo assessed that the amount of loss carryforward it was more likely than not to benefit from was $100,000. Tattoo uses a valuation allowance account. 1. Show the journal entry necessary for 2020 and 2021 deferred taxes and 2. Prepare the revised income tax section of 2019 to 2021 income statements, beginning with the line “Income (loss) before income tax.”.