Question
Toner Corporation computed the following: Year 1 taxable income, $50,000; Year 2 taxable loss, $( 200,000). At the end of Year 2, Toner made the
Toner Corporation computed the following: Year 1 taxable income, $50,000; Year 2 taxable loss, $( 200,000). At the end of Year 2, Toner made the following estimates: Year 3 taxable income, $20,000; Year 4 taxable income, $55,000; and Year 5 taxable income, $250,000. On the basis of these estimates, Toner believes the full amount of the tax loss carryforward benefit is more likely than not to be realized. There are no other temporary differences. Tax rates are 25% for Year 1, Year 2, and Year 3; and 30% for Year 4 and Year 5. Net operating loss carryforwards can only offset a maximum of 80% of taxable income in each of the future years.
a. Provide the income tax entry for Year 2.
| Date | Account Name | Dr. | Cr. |
|---|---|---|---|
| Dec. 31, Year 2 | CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| |
| CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| ||
| To record income tax expense |
b. Provide the income tax entry for Year 3, assuming that the actual taxable income was $30,000 (tax rate, 25%).
| Date | Account Name | Dr. | Cr. |
|---|---|---|---|
| Dec. 31, Year 3 | CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| |
| CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| ||
| CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| ||
| To record income tax expense |
c. Provide the income tax entry for Year 4, assuming that Year 3 results were as described in part b, and that the actual Year 4 taxable income was $65,000.
| Date | Account Name | Dr. | Cr. |
|---|---|---|---|
| Dec. 31, Year 4 | CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| |
| CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| ||
| CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| ||
| To record income tax expense |
d. Provide the entry for Year 5, assuming results for Year 3 and Year 4 were as described in parts b and c, and assuming that the actual Year 5 taxable income was $225,000.
| Date | Account Name | Dr. | Cr. |
|---|---|---|---|
| Dec. 31, Year 5 | CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| |
| CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| ||
| CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| ||
| To record income tax expense |
e. Assume instead that the company qualifies for a two-year loss carryback for tax purposes, using the earlier year first and with no income restrictions. Assume also that any excess loss can then be carried forward indefinitely, with no income restrictions. Prepare the income tax journal entry for Year 2.
| Date | Account Name | Dr. | Cr. |
|---|---|---|---|
| Dec. 31, Year 2 | CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| |
| CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| ||
| CashIncome Tax Refund ReceivableDeferred Tax AssetValuation Allowance for Deferred Tax AssetIncome Tax PayableLiability for Unrecognized Tax BenefitsDeferred Tax LiabilityIncome Tax ExpenseN/A | Answer
| ||
| To record income tax expense |
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Managerial Accounting Tools For Business Decision Making Wileyplus Lms Student Package
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
8th Edition
