Question

pple reported the following pre tax income (loss) during 2010-2017

	Income (Loss)	Tax Rate	Date rate enacted into law
2010	180,000	35%	1/1/02
2011	125,000	35%
2012	60,000	35%
2013	80,000	35%
2014	70,000	38%	1/1/14
2015	(200,000)	40%	1/1/15
2016	80,000	40%
2017	220,000	35%	1/1/17

There are no temporary or permanent differences between taxable income and EBIT for ALL years

Assume Apple will elect to carryback losses to the extent possible

Also assume that at 12/31/15 Apple is reasonably confident that they will have $30,000 of taxable income in 2016

Required:

A) prepare journal entries for 2010-2017 for income tax expenses/benefit.

B) Draft the lower portion of the 2015 income statement starting with EBIT

C) Draft the lower portion of 2016 Income statement starting with EBIT

Answer 1

Income (Loss)	Tax Rate	Date rate enacted into law		Tax liability	Journal entries
2010	180,000	35%	1/1/2002	63000	Income tax expense         63000 Income tax payable                    63000
2011	125,000	35%		43750	Income tax expense         43750 Income tax payable                    43750
2012	60,000	35%		21000	Income tax expense         21000 Income tax payable                    21000
2013	80,000	35%		28000	Income tax expense         28000 Income tax payable                    28000
2014	70,000	38%	1/1/2014	26600	Income tax expense         26600 Income tax payable                    26600
2015	-200,000	40%	1/1/2015	-80000	Income tax receivable    80000 Income tax benefit                   80000
2016	80,000	40%		32000	Income tax expense        32000 Income tax receivable             32000
2017	220,000	35%	1/1/2017	77000	Income tax expense        77000 Income tax receivable             48000 Income tax payable                   29000

Income statement - year ended	2015	2016
EBIT	-200000	80000
Less: Interest	0	0
EBT	-200000	80000
Less: Income Tax expense / -benefit	-80000	32000
EAT	-120000	48000