Alliance
Inc. reports the following incomes (losses) for both book and tax purposes
(assume the carryback provision is used where possible):
Year
Accounting Income (Loss) Tax Rate
2009 $120,000 40%
2010 90,000 40%
2011 (80,000) 45%
2012 (40,000) 45%
The
tax rates listed were all enacted by the beginning of 2009.
Instructions
(a)
Prepare the journal entries for each of the years 2009 to 2012 to record income
taxes.
(b)
Prepare the income tax section of the income statements for each of the years
2009 to 2012, beginning with the line “Income (loss) before income taxes.”
(a)
2009
Current
Income Tax Expense............ 48,000
Income
Tax Payable ($120,000 X 40%) 48,000
2010
Current
Income Tax Expense............ 36,000
Income
Tax Payable ($90,000 X 40%) 36,000
2011
Income Tax
Refund Receivable.......... 32,000
Current
Income Tax Benefit
(Due to Loss Carryback)...... 32,000 **
**(40% X $80,000)
2012
Income Tax
Refund Receivable.......... 16,000
Current
Income Tax Benefit
(Due to Loss Carryback)....... 16,000 **
**(40% X $40,000)
(b)
2009
Income before income taxes $120,000
Income tax expense – Current 48,000
Net income $72,000
2010
Income before income taxes $90,000
Income tax expense – Current 36,000
Net income $54,000
2011
Operating loss before income taxes $(80,000)
Current tax benefit due to loss carryback 32,000
Net loss $(48,000)
2012
Operating loss before income taxes $(40,000)
Current tax benefit due to loss carryback 16,000
Net loss $(24,000)
