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Chapter 19: Q7IFRS (page 1114)

Rode Inc. incurred a net operating loss of \(500,000 in 2017. Combined income for 2015 and 2016 was \)350,000. The tax rate for all years is 40%. Rode elects the carryback option. Prepare the journal entries to record the benefits of the loss carryback and the loss carryforward.

Short Answer

Expert verified

Journal entries are recorded in Step 2

Step by step solution

01

Meaning of Income-tax

Income tax is additional surcharge payable on the total income generated by the entity, to the taxing authority.

02

Preparing journal entries

Deferred tax asset=(Operating loss−Combined income)×Tax rate=($500,000−$350,000)×40%=$150,000×40%=$60,000

Date

Particulars

Debit ($)

Credit ($)

Income tax refund receivable

140,000

Benefits due to loss carry back

140,000

Deferred tax asset

60,000

Benefits due to loss carry forward

60,000

Working notes:

Calculation of income tax refund receivable

Income tax refund receivable=Combined income×Tax rate=$350,000×40%=$140,000

Calculation of deferred tax asset

Deferred tax asset=(Operating loss−Combined income)×Tax rate=($500,000−$350,000)×40%=$150,000×40%=$60,000

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Most popular questions from this chapter

South Carolina Corporation has one temporary difference at the end of 2017 that will reverse and cause taxable amounts of \(55,000 in 2018, \)60,000 in 2019, and \(65,000 in 2020. South Carolina’s pretax financial income for 2017 is \)300,000, and the tax rate is 30% for all years. There are no deferred taxes at the beginning of 2017. Instructions (a) Compute taxable income and income taxes payable for 2017. (b) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017. (c) Prepare the income tax expense section of the income statement for 2017, beginning with the line “Income before income taxes.”

Youngman Corporation has temporary differences at December 31, 2017, that result in the following deferred taxes.

Deferred tax asset $24,000

Deferred tax liability 69,000

Indicate how these balances would be presented in Youngman’s December 31, 2017, statement of financial position.

Shetland Inc. had pretax financial income of \(154,000 in 2017. Included in the computation of that amount is insurance expense of \)4,000 which is not deductible for tax purposes. In addition, depreciation for tax purposes exceeds accounting depreciation by $10,000. Prepare Shetland’s journal entry to record 2017 taxes, assuming a tax rate of 45%.

Nadal Inc. has two temporary differences at the end of 2016. The first difference stems from installment sales, and the second one results from the accrual of a loss contingency. Nadal’s accounting department has developed a schedule of future taxable and deductible amounts related to these temporary differences as follows. 2017 2018 2019 2020 Taxable amounts \(40,000 \)50,000 \(60,000 \)80,000 Deductible amounts (15,000) (19,000) \(40,000 \)35,000 \(41,000 \)80,000 As of the beginning of 2016, the enacted tax rate is 34% for 2016 and 2017, and 38% for 2018–2021. At the beginning of 2016, the company had no deferred income taxes on its balance sheet. Taxable income for 2016 is $500,000. Taxable income is expected in all future years. Instructions (a) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016. (b) Indicate how deferred income taxes would be classified on the balance sheet at the end of 2016.

At December 31, 2017, Appaloosa Corporation had a deferred tax liability of \(25,000. At December 31, 2018, the deferred tax liability is \)42,000. The corporation’s 2018 current tax expense is $48,000. What amount should Appaloosa report as total 2018 income tax expense?
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