18-12

Question 1

Prepare the journal entries to record income taxes for the years 2013 to 2015. Assume that Carlyuses the carryback
provision where possible and expects to realize the benefits of any loss carryforward in the year that immediately follows the loss year.

Answer 1

dr. Income Tax Receivable—2010 …………………….. 5,000
($25,000 X 20%)
dr. Income Tax Receivable—2011 …………………….. 12,000
($60,000 X 20%)
dr. Income Tax Receivable—2012 …………………….. 24,000
($80,000 X 30%)
cr. Current Tax Benefit .…………………………….. 41,000

Question 2

expects to realize the benefits of any loss carryforward in the year that immediately
follows the loss year.

(most likely than not)

Answer 2

dr. Deferred Tax Asset ………………………………. 13,500

cr. Deferred Tax Benefit……………………….. 13,500
($210,000 – $25,000 – $60,000 – $80,000 = $45,000)
($45,000 X 30% = $13,500)

30% is the tax rate for the next year

You subtract the Income for those years, not the taxes!!!

Question 3

Recording the taxes payable for the next year (the year you carry forward the loss)

Answer 3

Two things will happen:

1. You subtract from the income the leftover loss

dr. Current Tax Expense……………………………. 7,500
cr. Income Tax Payable………………………. 7,500
[($70,000 – $45,000) X 30%]

2. You ‘reverse’ the entry you had last year when you recorded the Deferred Tax asset

dr. Deferred Tax Expense ………………………….. 13,500
cr. Deferred Tax Asset .………………………. 13,500
($13,500 – $0)

Deferred Tax Asset - is reversed=> it is used up now by subtracting the leftover loss before calculating the Net Income. It will show on two years Income Statements:

• first year to reduce the loss (Deferred benefit due to loss carryforward)
• second year as an expense as it was used up:

Income tax expense:
Current $7,500a
Deferred 13,500

Question 4

Intraperiod allocation

Answer 4

you show:

• current taxes/benefit
• deferred taxes/benefit