Question

Bridgeport Corporation had the following tax information: Year Taxable Income Tax Rate Taxes Paid 2014 --...

Bridgeport Corporation had the following tax information:

Year Taxable Income Tax Rate Taxes Paid
2014 -- $391,000 ----- 31% ----------- $121,210
2015 -- $ 313,000 ------- 30% --------$93,900
2016 ---- $399,700 ------ ----- 30% --------- $ 119,910

In 2017, Bridgeport suffered a net operating loss of $556,000, which it decided to carry back. The 2017 enacted tax rate is 25%.

A) Prepare Bridgeport’s entry to record the effect of the loss carryback. (Credit account titles are automatically indented when the 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.)

Only two entries please. Explain how to solve. Thanks

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Answer #1

Note: There is only one journal entry required for the effect of loss carryback. Kindly select "No Entry" as required.

Date Account Titles and Explanation Debit Credit
2017 Income tax refund receivable 166800
Income tax benefit from loss carryback 166800
(To record effect of loss carryback)

The loss for 2017 is carried back to the years 2015 and 2016 to the extent of $556000. Since both 2015 and 2016 have a tax rate of 30%, the effect of loss carryback is 30% x $556000 = $166800

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