Question

Exercise 19-21

The pretax financial income (or loss) figures for Flounder Company are as follows.

2017		77,000
2018		(44,000	)
2019		(39,000	)
2020		131,000
2021		105,000

Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 25% tax rate for 2017 and a 20% tax rate for the remaining years.

Prepare the journal entries for the years 2017 to 2021 to record income tax expense and the effects of the net operating loss carryforwards. All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.)

Answer 1

Answer:

year	Accounts and explanation	Debit	Credit
2017	Income tax expense(77000*20%)	15400
	Income tax payable		15400
	(To record tax payable on taxable income)
2018	Income tax refund receivable(44000*25%)	11000
	Benefit due to loss carry back		11000
	(To record refund on account of loss carried back to 2016)
2019	Income tax refund receivable	15400
	Benefit due to loss carry back		15400
	(To record refund on account of loss carried back to 2016)
2019	Deferred tax Asset(39000-77000)*20%	7600
	Benefit due to loss carried forward		7600
	(loss carried forward to future years
2020	Income tax expense(131000*20%)	26200
	Deferred tax Asset		26200
	(To record tax payable for the year adjusted against tax credit)
2021	Income tax expense(105000*20%)	21000
	Deferred tax Asset		21000
	(To record income tax expense)