Beilman Inc. reports the following pretax income (loss) for both book and tax purposes. (Assume the carryback provision is used where possible for a net operating loss.) Year Pretax Income (Loss) Tax Rate 2015 $120,000 40% 2016 90,000 40 2017 (280,000) 45 2018 120,000 45 The tax rates listed were all enacted by the beginning of 2015.Instructions (a) Prepare the journal entries for years 2015–2018 to record income tax expense (benefit) and income taxes payable (refundable), and the tax effects of the loss carryback and loss carryforward, assuming that based on the weight of available evidence, it is more likely than not that one-half of the benefits of the loss carryforward will not be realized. (b) Prepare the income tax section of the 2017 income statement beginning with the line “Operating loss before income taxes.” (c) Prepare the income tax section of the 2018 income statement beginning with the line “Income before income taxes.”

Date

Particulars

Debit

Credit

2015

Income tax expense $\left(\$120,000\times 40\%\right)$

$48,000

Income tax payable

$48,000

(To record the income tax)

2016

Income tax expense $\left(\$90,000\times 40\%\right)$

$36,000

Income tax payable

$36,000

(To record the income tax)

2017

Income tax refund receivables

$\left(\$48,000+\$36,000\right)$

$84,000

Benefit due to loss carryback

$84,000

(To record the loss carryback)

2017

Deferred tax asset

$\left[\left(\$280,000-\left(\$120,000-\$90,000\right)\right)\times 45\%\right]$

$31,500

Benefit due to loss carryforward

$31,500

(To record the loss carryforward)

2017

Benefit due to loss carryforward

$\left(\left(\$70,000\times 45\%\right)\times 50\%\right)$

$15,750

Allowance to reduce the deferred tax asset to expected realizable value

$15,750

(To record the loss carryforward)

2018

Income tax expense

$54,000

Income tax payable

$\left(\left(\$120,000-\$70,000\right)\times 45\%\right)$

$22,500

Deferred tax asset

$31,500

(To record the tax)

2018

Allowance to reduce deferred tax asset

$15,750

Benefit due to loss carryforward

$15,750

(To record the allowance)

Particulars

Amount

Operating loss before income taxes

($280,000)

Add: Income tax benefit

Benefit due to loss carryback

$84,000

Benefit duet to loss carryforward

$31,500

Net Loss

($164,500)

Particulars

Amount

Income before income tax

$120,000

Less: Income tax expense

Current tax

$22,500

Deferred tax

$31,500

Benefit due to loss carryforward

($15,750)

Net Profit

$81,750