Question

GOLDEN Corporation reported the following nro.tax accounting income and taxable income for years 2017-2019 2017 150,000 2018 100,000 2019 (NOL) <200,000> The tax rate in effect for years 2019 and later is 30% REQUIRED: 1. Record all necessary journal entries for the 2019 carryforward if it is more likely than not that one third of the benefits of the NOL carryforward will not be realized. 2. Show how the 2019 Income Statement will appear after the journal entries are made, Pre-tax accounting loss 3. Show how the BS will look for any DTA at 12-31-19.

Answer 1

Answer:

NOL in 2019 (200000)

Income tax rate 30%

Maximum Tax benefit = 200000*30%

= 60000

a) Since company is more likely then not the one third of the benefits of the NOL carry forward will not be realized, therefore we need to accounts only deferred tax assets which can be realized in future year i.e. 2/3 of the benefit.

Journal entry for carry forward deferred tax assets:

Deferred tax assets (Balance sheet grouping) 40000

To Deferred tax assets (Profit and loss account grouping) 40000

b) Income statement after deferred tax assets on NOL

Pre-tax operating loss (200000)

Add: Deferred tax assets   40000

Post-tax operating loss (160000)

c) Balance sheet with Deferred tax assets:

Assets:

Deferred tax assets 40000