The
accounting income (loss) figures for Farah Corporation are as follows:
2006
……………………….. $ 160,000
2007
……………………….. 250,000
2008
……………………….. 80,000
2009
……………………….. (160,000)
2010
……………………….. (380,000)
2011
……………………….. 130,000
2012
……………………….. 145,000
Accounting
income (loss) and taxable income (loss) were the same for all years involved.
Assume a 42% tax rate for 2006 and 2007, and a 38% tax rate for the remaining
years.
Instructions
Prepare
the journal entries for each of the years 2008 to 2012 to record income tax
expense and the effects of the tax loss carrybacks and carryforwards, assuming
Farah Corporation uses the carryback provision first. All income and losses relate
to normal operations and it is more likely than not that the company will
generate substantial taxable income in the future.
2008
Current Income Tax Expense.............. 30,400
Income Tax
Payable ($80,000 X 38%).. 30,400
2009
Income Tax Refund Receivable............ 67,200
($160,000 X 42%)
Current
Income Tax Benefit
(Due to
Loss Carryback).......... 67,200
2010
The 2010 loss of $380,000 is carried back $250,000 to
2007 and $80,000 to 2008, leaving $50,000 to carry forward.
Income Tax Refund Receivable............ 135,400
Current
Income Tax Benefit
(Due to
Loss Carryback).......... 135,400
($250,000 X
42% + $80,000 X 38%)
Future Income Tax Asset................. 19,000
Future
Income Tax Benefit
(Due to
Loss Carryforward)....... 19,000
($50,000 X
38%)
2011
Current Income Tax Expense.............. 30,400
Income Taxes
Payable ............... 30,400
[38% X
($130,000 – $50,000 Loss Carryforward)]
Future Income Tax Expense............... 19,000
Future
Income Tax Asset............. 19,000
($0 –
$19,000)
2012
Current Income Tax Expense.............. 55,100
Income Taxes
Payable ($145,000 X 38%) 55,100
