Question

In formation for 37,38 and 39. Vintage Car Corporation has pretax financial income (or loss) equal to taxable income (or loss) from 2006 through 2012 as follows.

2006 $ 40,000   40%

2007 63,000 40%

2008 36,000 30%

2009 (179,000) 35%

2010 85,000 40%

2011 59,000 40%

2012 (135,000) 40%

Pretax financial income (loss) and taxable income (loss) were the same for all years since Vintage Car has been in business. Assume the carryback provision is employed for net operating losses. In recording the benefits of a loss carryforward, assume that it is more likely than not that the related benefits will be realized.

37.What is the amount of deferred tax asset to be recognized in 2009, if there is no valuation allowance?

a. $32,000

b. $ -0-
c. $80,000

d. $28,000

38. What net income (loss) is reported in 2009?

a. $(179,000)

b. $(111,000)

c. $(147,000)

d. $0

39.For 2010, what is the amount of current income tax expense?

a. $0

b. $2,000

c. $34,00

d. $85,000

Answer 1

Solution 37:

Income tax refund receivables due to loss carryback in 2009 = ($63,000*40%) + ($36,000*30%) = $25,200 + $10,800 = $36,000

Loss to be carry forward for 2009 = $179,000 - $63,000 - $36,000 = $80,000

Deferred tax assets to be recognized in 2009 = $80,000*40% = $32,000

Option a is correct.

Solution 38:

Net Income (loss) to be reported in 2009 = Opearing Income / (loss) before income tax - benefit due to loss carry back - benefit due to loss carryforward

= ($179,000) + $36,000 + $32,000 = ($111,000)

Option b is correct.

Solution 38:

Operating income before tax for 2010 = $85,000

Operating income after setoff of losses of 2009 = $85,000 - $80,000 = $5,000

Income tax expense for 2010 = $5,000*40% = $2,000

Option b is correct.