Question

Problem 19-05 a, c-d (Part Level Submission)

Crane Inc. reported the following pretax income (loss) and related tax rates during the years 2019–2022.

		Pretax Income (loss)			Tax Rate
2019		$64,000			40	%
2020		(144,000)			40	%
2021		160,000			20	%
2022		80,000			20	%

Pretax financial income (loss) and taxable income (loss) were the same for all years since Crane began business. The tax rates from 2019–2022 were enacted in 2019.

(a)

Prepare the journal entries for the years 2020–2022 to record income taxes payable (refundable), income tax expense (benefit), and the tax effects of the loss carryforward. Assume that Crane expects to realize the benefits of any loss carryforward in the year that immediately follows the loss year. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
2020
2021
2022

Answer 1

Solution:

Journal Entries - Crane Inc.
Year	Particulars	Debit	Credit
2020	Deferred tax assets Dr ($144,000*20%)	$28,800.00
	To Income tax benefit - Net operating loss		$28,800.00
	(To record income tax benefit for loss carryforward)
2021	Income tax expense Dr	$32,000.00
	To Income taxes Payable		$3,200.00
	To Deferred tax assets		$28,800.00
	(To record income tax expense for the year)
2022	Income tax expense Dr	$16,000.00
	To Income taxes Payable		$16,000.00
	(To record income tax expense for the year)