(NOL Carryback and Carry forward, Valuation Account versus No Valuation Account) Sondgeroth Inc. reports the following pretax income (loss) for both financial reporting purposes and tax purposes. (Assume the carryback provision is used for a net operating loss.)
|
Year |
Pretax Income (Loss) |
Tax Rate |
|
2011 |
$110,000 |
34% |
|
2012 |
90,000 |
34% |
|
2013 |
(260,000) |
38% |
|
2014 |
220,000 |
38% |
The tax rates listed were all enacted by the beginning of 2011.
Instructions
(a) Prepare the journal entries for the years 2011–2014 to record income tax expense (benefit), income taxes payable (refundable), and the tax effects of the loss carryback and carry forward, assuming that at the end of 2013 the benefits of the loss carry forward are judged more likely than not to be realized in the future.
(b) Using the assumption in (a), prepare the income tax section of the 2013 income statement, beginning with the line “Operating loss before income taxes.”
(c) Prepare the journal entries for 2013 and 2014, assuming that based on the weight of available evidence, it is more likely than not that one fourth of the benefits of the loss carry forward will not be realized.
(d) Using the assumption in (c), prepare the income tax section of the 2013 income statement, beginning with the line “Operating loss before income taxes.”