Question

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?

Short answer

The following computations will be recorded for the above question. Since the company is incurring operating losses in 2013 and 2017, the amount will be improvised through the previous income tax expense.

Step-by-step solution

(a) Journal entries for income taxes for the year 2013

Date	Particulars	Debit	Credit
2013	Deferred tax asset$\left(\$150,000\times 40\%\right)$	$60,000
	Deferred tax		$60,000
	(To record the deferred tax asset)

(b) The disclosure of the income tax expense for the year 2013

Income Statement
Particulars	Amount
Current tax expense
Deferred tax expense	($60,000)
Total tax expense	($60,000)

(c) Entry for 2014

Date	Particulars	Debit	Credit
2014	Deferred tax asset $\left(\$90,000\times 40\%\right)$	$36,000
	Deferred tax		$36,000
	(To record the deferred tax asset)

(d) Indication of the amounts

Income Statement
Particulars	Amount
Current tax expense
Deferred tax expense	$18,000
Total tax expense	$18,000

(e) Entry for 2017

Date	Particulars	Debit	Credit
2017	Income tax refund receivables $\left(\$60,000\times 45\%\right)$	$27,000
	Income tax benefit-net operating loss		$27,000
	(To record the carryback loss)

(f) Indication of the amounts

Income Statement
Particulars	Amount
Current tax expense
Deferred tax expense	$27,000
Total tax expense	$27,000