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Chapter 19: Question 12BE (page 1094)

Conlin Corporation had the following tax information. Year Taxable Income Tax Rate Taxes Paid 2015 \(300,000 35% \)105,000 2016 325,000 30 97,500 2017 400,000 30 120,000 In 2018, Conlin suffered a net operating loss of $480,000, which it elected to carry back. The 2018 enacted tax rate is 29%. Prepare Conlin鈥檚 entry to record the effect of the loss carryback.

Short Answer

Expert verified

Loss carrybackis used when an organization faces anet operating lossin thecurrent yearand tries to adjust theloss amount to the previous year'sincome tax return.

Step by step solution

01

Computation of loss carryback amount

LossCarryback=Taxespaid2016+[(Netoperatingloss-TaxableIncome2016脳Taxrate2016]=$97,500+[($480,000-$325,000)脳30%]=$97,500+$46,500=$144,000

02

Journal entry

Conlin Corporation
Journal Entry

Date

Particulars

Debit

Credit

2018

Income tax refund receivables

$144,000

Benefit due to loss carryback

$144,000

(To record the loss carryback)

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Most popular questions from this chapter

At December 31, 2017, Percheron Inc. had a deferred tax asset of \(30,000. At December 31, 2018, the deferred tax asset is \)59,000. The corporation鈥檚 2018 current tax expense is $61,000. What amount should Percheron report as total 2018 income tax expense?

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The following information is available for Remmers Corporation for 2017. 1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by \(120,000. This difference will reverse in equal amounts of \)30,000 over the years 2018鈥�2021. 2. Interest received on municipal bonds was \(10,000. 3. Rent collected in advance on January 1, 2017, totaled \)60,000 for a 3-year period. Of this amount, \(40,000 was reported as unearned at December 31, 2017, for book purposes. 4. The tax rates are 40% for 2017 and 35% for 2018 and subsequent years. 5. Income taxes of \)320,000 are due per the tax return for 2017. 6. No deferred taxes existed at the beginning of 2017. Instructions (a) Compute taxable income for 2017. (b) Compute pretax financial income for 2017. (c) Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2017 and 2018. Assume taxable income was $980,000 in 2018. (d) Prepare the income tax expense section of the income statement for 2017, beginning with 鈥淚ncome before income taxes.鈥�

Question: Novotna Inc.鈥檚 only temporary difference at the beginning and end of 2016 is caused by a \(3 million deferred gain for tax purposes for an installment sale of a plant asset, and the related receivable (only one-half of which is classified as a current asset) is due in equal installments in 2017 and 2018. The related deferred tax liability at the beginning of the year is \)1,200,000. In the third quarter of 2016, a new tax rate of 34% is enacted into law and is scheduled to become effective for 2018. Taxable income for 2016 is $5,000,000, and taxable income is expected in all future years.

Instructions

(a) Determine the amount reported as a deferred tax liability at the end of 2016. Indicate proper classification(s).

(b) Prepare the journal entry (if any) necessary to adjust the deferred tax liability when the new tax rate is enacted into law.

(c) Draft the income tax expense portion of the income statement for 2016. Begin with the line 鈥淚ncome before income taxes.鈥� Assume no permanent differences exist.

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