Exercise 19-10 Felicia Rashad Corporation has pretax financial income (or loss)
ID: 2417658 • Letter: E
Question
Exercise 19-10 Felicia Rashad Corporation has pretax financial income (or loss) equal to taxable income (or loss) from 2006 through 2014 as follows Income (Loss 2006 2007 2008 2009 2010 2011 2012 2013 2014 $33,640 46,400 19,720 55,680 (174,000 ) 104,400 34,800 121,800 (69,600 ) Tax Rate 30 % 30 % 35 % 50 % 40 % 40 % 40 % 40 % 45 % Pretax financial income (loss) and taxable income (loss) were the same for all years since Rashad has been in business. Assume the carryback provision is employed for net operating losses. In recording the benefits of a loss carryforward, assume that it is more likely than not that the related benefits will be realized What entries for income taxes should be recorded for 2010? (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit (To record carryback.) (To record carryforward.) Indicate what the income tax expense portion of the income statement for 2010 should look like. Assume al income (loss) relates to continuing operations. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Felicia Rashad Corporation Income Statement (Partial) Year ended December 31, 2010 What entry for income taxes should be recorded in 2011? (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit CreditExplanation / Answer
Solution:
Calculation for 2010:
Income tax refund receivable = [(55680* .50) + (19720*0.35)] = [27840+6902] =34742
Benefits due to loss carryforward= (174000 - 55680-19720 = 98600 ) ; 98600*0.40 = 39440
Account title
Debit
Credit
Income tax refund receivables
34742
Benefits due to loss carryback
( To record carryback)
34742
Deferred tax
39440
Benefits due to loss carryforward
(To record carryforward)
39440
Felicia Rashad Corporation
Income statement ( partial )
Year ended December 31, 2010
Operating loss before income tax................................................(174000)
Income tax Benefit
Benefits due to loss carryback.............34742
Benefits due to loss carryforward.........39440
Total............................................................................................74182
Net income / (loss)........................................................................99818
Calculation for 2011:
Income tax expense = 104400*.40 = 41760
Deferred tax asset of 39440 is going to be realized in the year that immediately follows the loss year i.e. 2011. Therefore, tax payable in 2011 = 41760 - 39440 = 2320
Journal entry :
Tax expense Dr..............41760
To deferred tax.......................39440
To cash.................................2320
Felicia Rashad Corporation
Income statement ( partial )
Year ended December 31, 2011
Operating income before income tax................................................104400
Income tax expense current 2320
Income tax expense deferred 39440
Net tax payable..............................................................................41760
Net income / (loss)........................................................................ 62640
Calculation for 2014:
Income tax refund receivable = [(121800* .40) + (34800*0.40)] = [48720+13920] =62640
Journal entry:
Income tax refund receivable Dr................62640
To benefits due to loss carryback................................62640
Felicia Rashad Corporation
Income statement ( partial )
Year ended December 31, 2011
Operating loss before income tax................................................(69600)
Benefits due to loss carryback...................................................62640
Net income / (loss).....................................................................6960
Account title
Debit
Credit
Income tax refund receivables
34742
Benefits due to loss carryback
( To record carryback)
34742
Deferred tax
39440
Benefits due to loss carryforward
(To record carryforward)
39440
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.