(a) Date Account Titles and Explanation Debit Credit 2018 (To record deferred ta

Question

(a)

Date

Account Titles and Explanation

Debit

Credit

2018

(To record deferred tax asset/liability)

(To record reduction in asset value)

(To record income tax expense)

(To eliminate allowance and
recognize loss carryforward)

Ayayai Co. reported the following pretax financialincome (loss) for the years 2015–2019.
2015 $335,000 2016 476,000 2017 228,000 2018 (757,000 ) 2019 259,000
Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate was 34% for 2015 and 2016, and 40% for 2017–2019. Assume the carryback provision is used first for net operating losses.

Explanation / Answer

Calculation of income tax payable: Year Income Previous years loss adjusted @ 1/5 Net income Tax Rate Income tax payable (a)    (b) (c ) = (a) - (b) (d) (e ) = (c )* (d) 2015 $335,000 $335,000 34% $113,900 2016 $476,000 $476,000 34% $161,840 2017 $228,000 $228,000 40% $91,200 2018 -$757,000 -$757,000 0% - 2019 $259,000 -$151,400 $107,600 40% $43,040 Date Account Title & explanations Debit Credit 2017 Profit & Loss 91,200 Income Tax Liability $91,200 Income Tax Liability 91,200 Bank $91,200 2018 No entry 2019 Profit & Loss 43,040 Income Tax Liability $43,040 Income Tax Liability 43040 Bank $43,040

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