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Chapter 19: Question 14BE (page 1094)

Use the information for Rode Inc. given in BE19-13. Assume that it is more likely than not that the entire net operating loss carryforward will not be realized in future years. Prepare all the journal entries necessary at the end of 2017.

Short Answer

Expert verified

Thenet operating lossis the type oflossan organization suffers when theallowable deductionof the firm ishigherthan theamount of taxable incomeduring afinancial year.

Step by step solution

01

Determining the amount of loss carryback and loss carryforward amount for 2013

LossCarryback2018=CombinedIncome×Taxrate=$350,000×40%=$140,000

Losscarryforward2018=(Netoperatingloss-CombinedIncome)×TaxRate=($500,000-$350,000)×40%=$150,000×40%=$60,000

02

Recording of journal entry for 2018

Rode Inc.
Journal entry for the year 2018

Date

Particulars

Debit

Credit

2018

Income tax refund receivables Dr.

$140,000

To Benefit due to loss carryback

$140,000

(To record the loss carryback for 2018)

2018

Deferred tax asset Dr.

$60,000

To Benefit due to loss carryforward

$60,000

(To record the loss carryforward for 2018)

2018

Benefit due to loss carryforward Dr.

$60,000

To Allowance to reduce deferred tax asset to expected realizable value

$60,000

(To record the allowance to reduce the deferred tax asset for 2018)

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Most popular questions from this chapter

Youngman Corporation has temporary differences at December 31, 2017, that result in the following deferred taxes. Deferred tax liability related to depreciation difference $38,000 Deferred tax asset related to warranty liability 62,000 Deferred tax liability related to revenue recognition 96,000 Deferred tax asset related to litigation accruals 27,000 Indicate how these balances would be presented in Youngman’s December 31, 2017, balance sheet.

Using the information from BE19-2, assume this is the only difference between Oxford’s pretax financial income and taxable income. Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable, and show how the deferred tax liability will be classified on the December 31, 2017, balance sheet.

Felicia Rashad Corporation has pretax financial income (or loss) equal to taxable income (or loss) from 2009 through 2017 as follows.Income (Loss) Tax Rate 2009 $ 29,000 30% 2010 40,000 30 2011 17,000 35 2012 48,000 50 2013 (150,000) 40 2014 90,000 40 2015 30,000 40 2016 105,000 40 2017 (60,000) 45Pretax financial income (loss) and taxable income (loss) were the same for all years since Rashad 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. Instructions (a) What entry(ies) for income taxes should be recorded for 2013? (b) Indicate what the income tax expense portion of the income statement for 2013 should look like. Assume all income (loss) relates to continuing operations. (c) What entry for income taxes should be recorded in 2014? (d) How should the income tax expense section of the income statement for 2014 appear? (e) What entry for income taxes should be recorded in 2017? (f) How should the income tax expense section of the income statement for 2017 appear?

Explain the meaning of a temporary difference as it relates to deferred tax computations, and give three examples.

Question: (Three Differences, Classify Deferred Taxes) At December 31, 2016, Belmont Company had a net deferred tax liability of \(375,000. An explanation of the items that compose this balance is as follows

Temporary differences

Resulting balance in deferred taxes

  1. Excess of tax depreciation over book depreciation

\)200,000

  1. Accruals, for book purpose, of estimated loss contingency from pending lawsuit that is expected to be settled in 2017. The loss will be deducted on the tax return when paid

(50,000)

  1. Accrual method used for book purposes and installment method used for tax purposes for an isolated installment sale of an investment

225,000

\(375,000

In analyzing the temporary differences, you find that \)30,000 of the depreciation temporary difference will reverse in 2017, and $120,000 of the temporary difference due to the installment sale will reverse in 2017. The tax rate for all years is 40%.

Instructions

Indicate the manner in which deferred taxes should be presented on Belmont Company’s December 31, 2016, balance sheet.
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