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Chapter 19: Question 13BE (page 1094)

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. Rode expects to return to profitability in 2018.

Short Answer

Expert verified

Loss carryforwardis theopposite of loss carryback, wherethe operating loss earnedin thecurrent financial yeariscarried forwardto thenext financial yearof the organization.

Step by step solution

01

Computation of loss carryback and the loss carryforward.

LossCarryback=CombinedIncome脳TaxRate=$350,000脳40%=$140,000

LossCarryforward=(Netoperatingloss-Combinedincome)脳Taxrate=($500,000-$350,000)脳40%=$150,000脳40%=$60,000

02

Journal entry

Rode Inc.
Journal entry

Date

Particulars

Debit

Credit

2018

Income tax refund receivables

$140,000

Benefit due to loss carryback

$140,000

(To record the loss carryback)

2018

Deferred tax asset

$60,000

Benefit due to loss carryforward

$60,000

(To record the loss carryforward)

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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 asset $24,000

Deferred tax liability 69,000

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

The pretax financial income (or loss) figures for Jenny Spangler Company are as follows:

2012- $160,000

2013- 250,000

2014- 80,000

2015- 160,000

2016- 380,000

2017- 120,000

2018- 100,000

Pretax financial income (or loss) and taxable income (loss) were the same for all the given years. Assume a 45% tax rate for 2012 and 2013, and a 40% tax rate for the remaining years. Instructions (a) Prepare the journal entries for the years 2014 to 2018 to record the income tax expense and effects of the net operating loss carrybacks and carryforwards assuming Jenny Spangler Company using the carryback provision. All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.)

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Describe the procedure(s) involved in classifying deferred tax amounts on the statement of financial position under IFRS.
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