Question

19.25 (LO 3) (NOL Carryforward, Valuation Account Needed) Meyer reported the bonus pretax financial income (loss) for the years 2020-2022 2020 $120,000 2021 (150,000) 2022 180,000 Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate was 20% for 2020-2022. Instructions 2. Prepare the journal entries for the years 2020-2022 to record income tax expense, income taxes payable, and the tax effects of the loss carryforward, assuming that based on the weight of available ely than not that one-fifth of the benefits of the loss carryforward will not be realized. b. Prepare the income tax section of the 2021 income statement beginning with the line "Income (loss) before income taxes."

Answer 1

17 Credit Debit 24,000 Date Account Title & Explanation 2020 Income Tax Expense (120000 *20%) Income Tax Payable (To record income tax expense) 24,000 24,000 6000 2021 Income Tax Refund Receivable Deferred Tax Asset Benefit Due to Loss Carryback Benefit Due to Loss Carryforward (TO record deferred tax asset and income tax expense) 24,000 (120000*20%) 6000 (150000-120000) *20% 1,200 1,200 Benefit Due to Loss Carryforward Allowance to reduce deferred tax asset to expected realizable value (6000*1/5) (To record 1/5th benefit not realized) 36,000 2022 Income Tax Expense (180000 *20%) Deferred Tax Asset Income Tax Payable (To record income tax expense) 6,000 30000 (180000 - (150000 - 120000))*20% 1,200 Allowance to reduce deferred tax asset to expected realizable value Benefit due to Loss Carryforward 1,200

(150,000) Myer Inc. Income Statement Partial December31,2021 Loss before Income Taxes Income Tax Benefit Benefit due to Loss Carryback Benefit due to loss carryforward (6000-1200) Net Loss 24,000 4,800 28,800 (121,200)