E 19-21 (L03) (Carry back and Carryforward of NOL, No Valuation Account, No Temp
ID: 2513214 • Letter: E
Question
E 19-21 (L03) (Carry back and Carryforward of NOL, No Valuation Account, No Temporary Differences) The pretax finan- cial income (or loss) figures for Jenny Spangler Company are as follows. 2012 2013 2014 2015 2016 2017 2018 $160,000 250,000 80,000 (160,000) (380,000) 120,000 100,000 Pretax financial income or loss and taxable income (loss) were the same for all years involved. Assume a 45% tax rate for 2012 and 2013 and a 40% tax rate for the remaining years. Instructions Prepare the journal entries for the years 2014 to 2018 to record income tax expense and the effects of the net operating loss carry- backs and carryforwards assuming Jenny Spangler Company uses the carryback provision. All income and losses relate to normal perations, (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary)Explanation / Answer
Date Description Debit Credit
2014 Income Tax Expense $32,000
Income Taxes Payable $32,000
($80,000 x 40%)
2015 Income Tax Refund Receivable $72,000
Benefit Due to NOL Carryback (Income Tax Expense) $72,000
($160,000 x 45%)
2016 Income Tax Refund Receivable $32,000
Benefit Due to NOL Carryback (Income Tax Expense) $32,000
($80,000 x 40%) (to record carryback)
2016 Deferred Tax Asset $120,000
Benefit Due to NOL Carryforward (Income Tax Expense) $120,000
[40% x ($380,000 - $80,000)] (to record carryforward)
2017 Income Tax Expense $48,000
Deferred Tax Asset $48,000
(40% x $120,000)
2018 Income Tax Expense $40,000
Deferred Tax Asset $40,000
(40% x $100,000)
Note 1: After 2018 there is an NOL from 2016 remaining of $80,000 which can be carried forward to offset future taxes of up to $32,000 ($80,000 x 40%) until it is used up or expires in 2036.
Note 2: Benefit due to loss carryback and benefit due to loss carryforward amounts are negative components of income tax expense.
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