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Exercises
E11.

(OneTemporaryDifference,FutureTaxableAmounts,OneRate,NoBeginningDeferredTaxes)
25
SouthCarolinaCorporationhasonetemporarydifferenceattheendof2014thatwillreverseandcause
taxableamountsof$55,000in2015,$60,000in2016,and$65,000in2017.SouthCarolina'spretax
financialincomefor2014is$300,000,andthetaxrateis30%forallyears.Therearenodeferredtaxesat
thebeginningof2014.
Instructions
(a)
Computetaxableincomeandincometaxespayablefor2014.
(b)
Preparethejournalentrytorecordincometaxexpense,deferredincometaxes,andincometaxespayable
for2014.
(c)
Preparetheincometaxexpensesectionoftheincomestatementfor2014,beginningwiththelineIncome
beforeincometaxes.
E12.
(TwoDifferences,NoBeginningDeferredTaxes,Trackedthrough2Years)
2
ThefollowinginformationisavailableforWengerCorporationfor2013(itsfirstyearofoperations).
1.Excessoftaxdepreciationoverbookdepreciation,$40,000.This$40,000differencewillreverse
equallyovertheyears20142017.
2.Deferral,forbookpurposes,of$20,000ofrentreceivedinadvance.Therentwillberecognizedin
2014.
3.Pretaxfinancialincome,$300,000.
4.Taxrateforallyears,40%.
Instructions
(a)
Computetaxableincomefor2013.
(b)
Preparethejournalentrytorecordincometaxexpense,deferredincometaxes,andincometaxespayable

for2013.
(c)
Preparethejournalentrytorecordincometaxexpense,deferredincometaxes,andincometaxespayable
for2014,assumingtaxableincomeof$325,000.

E13.

(OneTemporaryDifference,FutureTaxableAmounts,OneRate,BeginningDeferredTaxes)
25
BandungCorporationbegan2014witha$92,000balanceintheDeferredTaxLiabilityaccount.Attheend
of2014,therelatedcumulativetemporarydifferenceamountsto$350,000,anditwillreverseevenlyover
thenext2years.Pretaxaccountingincomefor2014is$525,000,thetaxrateforallyearsis40%,and
taxableincomefor2014is$405,000.
Instructions
(a)
Computeincometaxespayablefor2014.
(b)
Preparethejournalentrytorecordincometaxexpense,deferredincometaxes,andincometaxespayable
for2014.
(c)
Preparetheincometaxexpensesectionoftheincomestatementfor2014beginningwiththelineIncome
beforeincometaxes.
E14.
(ThreeDifferences,ComputeTaxableIncome,EntryforTaxes)
2356
ZurichCompanyreportspretaxfinancialincomeof$70,000for2014.Thefollowingitemscausetaxable
incometobedifferentthanpretaxfinancialincome.
1.Depreciationonthetaxreturnisgreaterthandepreciationontheincomestatementby$16,000.
2.Rentcollectedonthetaxreturnisgreaterthanrentrecognizedontheincomestatementby$22,000.
3.Finesforpollutionappearasanexpenseof$11,000ontheincomestatement.
Zurich'staxrateis30%forallyears,andthecompanyexpectstoreporttaxableincomeinallfutureyears.
Therearenodeferredtaxesatthebeginningof2014.
Instructions
(a)
Computetaxableincomeandincometaxespayablefor2014.

(b)
Preparethejournalentrytorecordincometaxexpense,deferredincometaxes,andincometaxespayable
for2014.
(c)
Preparetheincometaxexpensesectionoftheincomestatementfor2014,beginningwiththelineIncome
beforeincometaxes.
(d)
Computetheeffectiveincometaxratefor2014.
E15.
(TwoTemporaryDifferences,OneRate,BeginningDeferredTaxes)
235
ThefollowingfactsrelatetoKrungThepCorporation.
1.Deferredtaxliability,January1,2014,$40,000.
2.Deferredtaxasset,January1,2014,$0.
3.Taxableincomefor2014,$95,000.
4.Pretaxfinancialincomefor2014,$200,000.
5.CumulativetemporarydifferenceatDecember31,2014,givingrisetofuturetaxableamounts,
$240,000.
6.CumulativetemporarydifferenceatDecember31,2014,givingrisetofuturedeductibleamounts,
$35,000.
7.Taxrateforallyears,40%.
8.Thecompanyisexpectedtooperateprofitablyinthefuture.
Instructions
(a)
Computeincometaxespayablefor2014.
(b)
Preparethejournalentrytorecordincometaxexpense,deferredincometaxes,andincometaxespayable
for2014.
(c)
Preparetheincometaxexpensesectionoftheincomestatementfor2014,beginningwiththelineIncome
beforeincometaxes.
E16.
(IdentifyTemporaryorPermanentDifferences)
6
Listedbelowareitemsthatarecommonlyaccountedfordifferentlyforfinancialreportingpurposesthan

theyarefortaxpurposes.
Instructions
Foreachitembelow,indicatewhetheritinvolves:
(1)Atemporarydifferencethatwillresultinfuturedeductibleamountsand,therefore,willusuallygive
risetoadeferredincometaxasset.
(2)Atemporarydifferencethatwillresultinfuturetaxableamountsand,therefore,willusuallygiveriseto
adeferredincometaxliability.
(3)Apermanentdifference.
Usetheappropriatenumbertoindicateyouranswerforeach.
(a)_____TheMACRSdepreciationsystemisusedfortaxpurposes,andthestraightlinedepreciation
methodisusedforfinancialreportingpurposesforsomeplantassets.
(b)_____Alandlordcollectssomerentsinadvance.Rentsreceivedaretaxableintheperiodwhenthey
arereceived.
(c)_____Expensesareincurredinobtainingtaxexemptincome.
(d)_____Costsofguaranteesandwarrantiesareestimatedandaccruedforfinancialreportingpurposes.
(e)_____Installmentsalesofinvestmentsareaccountedforbytheaccrualmethodforfinancial
reportingpurposesandtheinstallmentmethodfortaxpurposes.
(f)_____Forsomeassets,straightlinedepreciationisusedforbothfinancialreportingpurposesandtax
purposesbuttheassets'livesareshorterfortaxpurposes.
(g)_____Interestisreceivedonaninvestmentintaxexemptmunicipalobligations.
(h)_____Proceedsarereceivedfromalifeinsurancecompanybecauseofthedeathofakeyofficer.
(Thecompanycarriesapolicyonkeyofficers.)
(i)_____Thetaxreturnreportsadeductionfor80%ofthedividendsreceivedfromU.S.corporations.
Thecostmethodisusedinaccountingfortherelatedinvestmentsforfinancialreportingpurposes.
(j)_____Estimatedlossesonpendinglawsuitsandclaimsareaccruedforbooks.Theselossesaretax
deductibleintheperiod(s)whentherelatedliabilitiesaresettled.
(k)_____Expensesonstockoptionsareaccruedforfinancialreportingpurposes.
E17.
(Terminology,Relationships,Computations,Entries)
2346
Instructions
Completethefollowingstatementsbyfillingintheblanks.
(a)
Inaperiodinwhichataxabletemporarydifferencereverses,thereversalwillcausetaxableincometobe
________(lessthan,greaterthan)pretaxfinancialincome.
(b)

Ifa$76,000balanceinDeferredTaxAssetwascomputedbyuseofa40%rate,theunderlyingcumulative
temporarydifferenceamountsto$________.
(c)
Deferredtaxes________(are,arenot)recordedtoaccountforpermanentdifferences.
(d)
Ifataxabletemporarydifferenceoriginatesin2014,itwillcausetaxableincomefor2014tobe________
(lessthan,greaterthan)pretaxfinancialincomefor2014.
(e)
Iftotaltaxexpenseis$50,000anddeferredtaxexpenseis$65,000,thenthecurrentportionoftheexpense
computationisreferredtoascurrenttax________(expense,benefit)of$________.
(f)
Ifacorporation'staxreturnshowstaxableincomeof$100,000forYear2andataxrateof40%,howmuch
willappearontheDecember31,Year2,balancesheetforIncometaxespayableifthecompanyhas
madeestimatedtaxpaymentsof$36,500forYear2?$________.
(g)
AnincreaseintheDeferredTaxLiabilityaccountonthebalancesheetisrecordedbya________(debit,
credit)totheIncomeTaxExpenseaccount.
(h)
Anincomestatementthatreportscurrenttaxexpenseof$82,000anddeferredtaxbenefitof$23,000will
reporttotalincometaxexpenseof$________.
(i)
Avaluationaccountisneededwheneveritisjudgedtobe________thataportionofadeferredtaxasset
________(willbe,willnotbe)realized.
(j)
Ifthetaxreturnshowstotaltaxesduefortheperiodof$75,000buttheincomestatementshowstotal
incometaxexpenseof$55,000,thedifferenceof$20,000isreferredtoasdeferredtax________(expense,
benefit).
E18.
(TwoTemporaryDifferences,OneRate,3Years)
2359
ButtonCompanyhasthefollowingtwotemporarydifferencesbetweenitsincometaxexpenseandincome
taxespayable.

2014
2015
2016
Pretaxfinancialincome
$840,000 $910,000 $945,000
Excessdepreciationexpenseontaxreturn (30,000) (40,000) (10,000)
Excesswarrantyexpenseinfinancialincome20,00010,0008,000

Excesswarrantyexpenseinfinancialincome20,00010,0008,000
Taxableincome
$830,000 $880,000 $943,000
Theincometaxrateforallyearsis40%.
Instructions
(a)
Assumingtherewerenotemporarydifferencespriorto2014,preparethejournalentrytorecordincometax
expense,deferredincometaxes,andincometaxespayablefor2014,2015,and2016.
(b)
Indicatehowdeferredtaxeswillbereportedonthe2016balancesheet.Button'sproductwarrantyisfor12
months.
(c)
Preparetheincometaxexpensesectionoftheincomestatementfor2016,beginningwiththelinePretax
financialincome.
E19.
(CarrybackandCarryforwardofNOL,NoValuationAccount,NoTemporaryDifferences)
8
Thepretaxfinancialincome(orloss)figuresforJennySpanglerCompanyareasfollows.
2009$160,000
2010 250,000
2011 80,000
2012 (160,000)
2013 (380,000)
2014 120,000
2015 100,000
Pretaxfinancialincome(orloss)andtaxableincome(loss)werethesameforallyearsinvolved.Assumea
45%taxratefor2009and2010anda40%taxratefortheremainingyears.
Instructions
Preparethejournalentriesfortheyears2011to2015torecordincometaxexpenseandtheeffectsofthe
netoperatinglosscarrybacksandcarryforwardsassumingJennySpanglerCompanyusesthecarryback
provision.Allincomeandlossesrelatetonormaloperations.(Inrecordingthebenefitsofaloss
carryforward,assumethatnovaluationaccountisdeemednecessary.)
E110.
(TwoNOLs,NoTemporaryDifferences,NoValuationAccount,EntriesandIncomeStatement)
8
FeliciaRashadCorporationhaspretaxfinancialincome(orloss)equaltotaxableincome(orloss)from
2006through2014asfollows.

Income(Loss)TaxRate
2006 $29,000
30%
2007 40,000
30%

2007 40,000

30%

2008 17,000
35%
2009 48,000
50%
2010 (150,000)
40%
2011 90,000
40%
2012 30,000
40%
2013 105,000
40%
2014 (60,000)
45%
Pretaxfinancialincome(loss)andtaxableincome(loss)werethesameforallyearssinceRashadhasbeen
inbusiness.Assumethecarrybackprovisionisemployedfornetoperatinglosses.Inrecordingthebenefits
ofalosscarryforward,assumethatitismorelikelythannotthattherelatedbenefitswillberealized.
Instructions
(a)
Whatentry(ies)forincometaxesshouldberecordedfor2010?
(b)
Indicatewhattheincometaxexpenseportionoftheincomestatementfor2010shouldlooklike.Assume
allincome(loss)relatestocontinuingoperations.
(c)
Whatentryforincometaxesshouldberecordedin2011?
(d)
Howshouldtheincometaxexpensesectionoftheincomestatementfor2011appear?
(e)
Whatentryforincometaxesshouldberecordedin2014?
(f)
Howshouldtheincometaxexpensesectionoftheincomestatementfor2014appear?
E111.
(ThreeDifferences,ClassifyDeferredTaxes)
239
AtDecember31,2013,BelmontCompanyhadanetdeferredtaxliabilityof$375,000.Anexplanationof
theitemsthatcomposethisbalanceisasfollows.

Inanalyzingthetemporarydifferences,youfindthat$30,000ofthedepreciationtemporarydifferencewill
reversein2014,and$120,000ofthetemporarydifferenceduetotheinstallmentsalewillreversein2014.
Thetaxrateforallyearsis40%.
Instructions
IndicatethemannerinwhichdeferredtaxesshouldbepresentedonBelmontCompany'sDecember31,
2013,balancesheet.
E112.
(TwoTemporaryDifferences,OneRate,BeginningDeferredTaxes,ComputePretaxFinancialIncome)
235
ThefollowingfactsrelatetoDuncanCorporation.
1.Deferredtaxliability,January1,2014,$60,000.
2.Deferredtaxasset,January1,2014,$20,000.
3.Taxableincomefor2014,$105,000.
4.CumulativetemporarydifferenceatDecember31,2014,givingrisetofuturetaxableamounts,
$230,000.
5.CumulativetemporarydifferenceatDecember31,2014,givingrisetofuturedeductibleamounts,
$95,000.
6.Taxrateforallyears,40%.Nopermanentdifferencesexist.
7.Thecompanyisexpectedtooperateprofitablyinthefuture.
Instructions
(a)
Computetheamountofpretaxfinancialincomefor2014.
(b)
Preparethejournalentrytorecordincometaxexpense,deferredincometaxes,andincometaxespayable
for2014.
(c)
Preparetheincometaxexpensesectionoftheincomestatementfor2014,beginningwiththelineIncome
beforeincometaxes.
(d)
Computetheeffectivetaxratefor2014.

E113.
(OneDifference,MultipleRates,EffectofBeginningBalanceversusNoBeginningDeferredTaxes)
27
Attheendof2013,LucretiaMcEvilCompanyhas$180,000ofcumulativetemporarydifferencesthatwill
resultinreportingfuturetaxableamountsasshown.
2014$60,000
2015 50,000
2016 40,000
2017 30,000

$180,000
Taxratesenactedasofthebeginningof2012are:
2012and201340%
2014and201530%
2016andlater 25%
McEvil'staxableincomefor2013is$320,000.Taxableincomeisexpectedinallfutureyears.
Instructions
(a)
PreparethejournalentryforMcEviltorecordincometaxespayable,deferredincometaxes,andincometax
expensefor2013,assumingthattherewerenodeferredtaxesattheendof2012.
(b)
PreparethejournalentryforMcEviltorecordincometaxespayable,deferredincometaxes,andincometax
expensefor2013,assumingthattherewasabalanceof$22,000inaDeferredTaxLiabilityaccountatthe
endof2012.
E114.
(DeferredTaxAssetwithandwithoutValuationAccount)
34
JenniferCapriatiCorp.hasadeferredtaxassetaccountwithabalanceof$150,000attheendof2013due
toasinglecumulativetemporarydifferenceof$375,000.Attheendof2014,thissametemporary
differencehasincreasedtoacumulativeamountof$450,000.Taxableincomefor2014is$820,000.The
taxrateis40%forallyears.Novaluationaccountrelatedtothedeferredtaxassetisinexistenceattheend
of2013.
Instructions
(a)
Recordincometaxexpense,deferredincometaxes,andincometaxespayablefor2014,assumingthatitis
morelikelythannotthatthedeferredtaxassetwillberealized.
(b)
Assumingthatitismorelikelythannotthat$30,000ofthedeferredtaxassetwillnotberealized,prepare
thejournalentryattheendof2014torecordthevaluationaccount.

E115.
(DeferredTaxAssetwithPreviousValuationAccount)
345
AssumethesameinformationasE114,exceptthatattheendof2013,JenniferCapriatiCorp.hada
valuationaccountrelatedtoitsdeferredtaxassetof$45,000.
Instructions
(a)
Recordincometaxexpense,deferredincometaxes,andincometaxespayablefor2014,assumingthatitis
morelikelythannotthatthedeferredtaxassetwillberealizedinfull.
(b)
Recordincometaxexpense,deferredincometaxes,andincometaxespayablefor2014,assumingthatitis
morelikelythannotthatnoneofthedeferredtaxassetwillberealized.
E116.
(DeferredTaxLiability,ChangeinTaxRate,PrepareSectionofIncomeStatement)
2579
NovotnaInc.'sonlytemporarydifferenceatthebeginningandendof2013iscausedbya$3million
deferredgainfortaxpurposesforaninstallmentsaleofaplantasset,andtherelatedreceivable(onlyone
halfofwhichisclassifiedasacurrentasset)isdueinequalinstallmentsin2014and2015.Therelated
deferredtaxliabilityatthebeginningoftheyearis$1,200,000.Inthethirdquarterof2013,anewtaxrate
of34%isenactedintolawandisscheduledtobecomeeffectivefor2015.Taxableincomefor2013is
$5,000,000,andtaxableincomeisexpectedinallfutureyears.
Instructions
(a)
Determinetheamountreportedasadeferredtaxliabilityattheendof2013.Indicateproper
classification(s).
(b)
Preparethejournalentry(ifany)necessarytoadjustthedeferredtaxliabilitywhenthenewtaxrateis
enactedintolaw.
(c)
Drafttheincometaxexpenseportionoftheincomestatementfor2013.BeginwiththelineIncomebefore
incometaxes.Assumenopermanentdifferencesexist.
E117.
(TwoTemporaryDifferences,Trackedthrough3Years,MultipleRates)
237
TaxableincomeandpretaxfinancialincomewouldbeidenticalforHuberCo.exceptforitstreatmentsof
grossprofitoninstallmentsalesandestimatedcostsofwarranties.Theincomecomputationsshownhave

beenprepared.
Taxableincome
2013
2014
2015
Excessofrevenuesoverexpenses(excludingtwotemporarydifferences) $160,000 $210,000 $90,000
Installmentgrossprofitcollected
8,000 8,000 8,000
Expendituresforwarranties
(5,000)(5,000)(5,000)
Taxableincome
$163,000 $213,000 $93,000
Pretaxfinancialincome
2013
2014
2015
Excessofrevenuesoverexpenses(excludingtwotemporarydifferences) $160,000 $210,000 $90,000
Installmentgrossprofitearned
24,000
0
0
Estimatedcostofwarranties
(15,000)
0
0
Incomebeforetaxes
$169,000 $210,000 $90,000
Thetaxratesineffectare2013,40%2014and2015,45%.AlltaxrateswereenactedintolawonJanuary
1,2013.Nodeferredincometaxesexistedatthebeginningof2013.Taxableincomeisexpectedinall
futureyears.
Instructions
Preparethejournalentrytorecordincometaxexpense,deferredincometaxes,andincometaxespayable
for2013,2014,and2015.
E118.
(ThreeDifferences,MultipleRates,FutureTaxableIncome)
237
During2014,KateHolmesCo.'sfirstyearofoperations,thecompanyreportspretaxfinancialincomeat
$250,000.Holmes'senactedtaxrateis45%for2014and40%foralllateryears.Holmesexpectstohave
taxableincomeineachofthenext5years.Theeffectsonfuturetaxreturnsoftemporarydifferences
existingatDecember31,2014,aresummarizedasfollows.

FutureYears

2015
2016
2017 2018 2019
Total
Futuretaxable(deductible)amounts:

Installmentsales
$32,000 $32,000 $32,000

$96,000
Depreciation
6,0006,000 6,000 $6,000$6,00030,000
Unearnedrent
(50,000) (50,000)

(100,000)
Instructions
(a)
CompletetheschedulebelowtocomputedeferredtaxesatDecember31,2014.
(b)
Computetaxableincomefor2014.
(c)
Preparethejournalentrytorecordincometaxespayable,deferredtaxes,andincometaxexpensefor2014.

December31,2014

DeferredTax

TemporaryDifferenceFutureTaxable(Deductible)AmountsTaxRate (Asset) Liability

Installmentsales
$96,000

Depreciation
30,000

Unearnedrent
Totals

(100,000)
$

E119.
(TwoDifferences,OneRate,BeginningDeferredBalance,ComputePretaxFinancialIncome)
239
AndyMcDowellCo.establishesa$100millionliabilityattheendof2014fortheestimatedsitecleanup
costsattwoofitsmanufacturingfacilities.Allrelatedclosingcostswillbepaidanddeductedonthetax
returnin2015.Also,attheendof2014,thecompanyhas$50millionoftemporarydifferencesdueto
excessdepreciationfortaxpurposes,$7millionofwhichwillreversein2015.
Theenactedtaxrateforallyearsis40%,andthecompanypaystaxesof$64millionon$160millionof
taxableincomein2014.McDowellexpectstohavetaxableincomein2015.
Instructions
(a)
Determinethedeferredtaxestobereportedattheendof2015.
(b)
Indicatehowthedeferredtaxescomputedin(a)aretobereportedonthebalancesheet.
(c)
Assumingthattheonlydeferredtaxaccountatthebeginningof2014wasadeferredtaxliabilityof
$10,000,000,drafttheincometaxexpenseportionoftheincomestatementfor2014,beginningwiththe
lineIncomebeforeincometaxes.(Hint:Youmustfirstcompute(1)theamountoftemporarydifference
underlyingthebeginning$10,000,000deferredtaxliability,then(2)theamountoftemporarydifferences
originatingorreversingduringtheyear,andthen(3)theamountofpretaxfinancialincome.)
E120.
(TwoDifferences,NoBeginningDeferredTaxes,MultipleRates)
239
TeriHatcherInc.,initsfirstyearofoperations,hasthefollowingdifferencesbetweenthebookbasisand
taxbasisofitsassetsandliabilitiesattheendof2013.

BookBasisTaxBasis
Equipment(net)
$400,000 $340,000
Estimatedwarrantyliability $200,000 $0
Itisestimatedthatthewarrantyliabilitywillbesettledin2014.Thedifferenceinequipment(net)will
resultintaxableamountsof$20,000in2014,$30,000in2015,and$10,000in2016.Thecompanyhas
taxableincomeof$520,000in2013.Asofthebeginningof2013,theenactedtaxrateis34%for2013
2015,and30%for2016.Hatcherexpectstoreporttaxableincomethrough2016.

Instructions
(a)
Preparethejournalentrytorecordincometaxexpense,deferredincometaxes,andincometaxespayable
for2013.
(b)
Indicatehowdeferredincometaxeswillbereportedonthebalancesheetattheendof2013.
E121.
(TwoTemporaryDifferences,MultipleRates,FutureTaxableIncome)
2379
NadalInc.hastwotemporarydifferencesattheendof2013.Thefirstdifferencestemsfrominstallment
sales,andthesecondoneresultsfromtheaccrualofalosscontingency.Nadal'saccountingdepartmenthas
developedascheduleoffuturetaxableanddeductibleamountsrelatedtothesetemporarydifferencesas
follows.

2014 2015
2016 2017
Taxableamounts $40,000$50,000$60,000$80,000
Deductibleamounts

(15,000) (19,000)

$40,000$35,000$41,000$80,000
Asofthebeginningof2013,theenactedtaxrateis34%for2013and2014,and38%for20152018.Atthe
beginningof2013,thecompanyhadnodeferredincometaxesonitsbalancesheet.Taxableincomefor
2013is$500,000.Taxableincomeisexpectedinallfutureyears.
Instructions
(a)
Preparethejournalentrytorecordincometaxexpense,deferredincometaxes,andincometaxespayable
for2013.
(b)
Indicatehowdeferredincometaxeswouldbeclassifiedonthebalancesheetattheendof2013.
E122.
(TwoDifferences,OneRate,FirstYear)
239
ThedifferencesbetweenthebookbasisandtaxbasisoftheassetsandliabilitiesofCastleCorporationat
theendof2013arepresentedbelow.

BookBasisTaxBasis
Accountsreceivable $50,000
$0
Litigationliability 30,000
0
Itisestimatedthatthelitigationliabilitywillbesettledin2014.Thedifferenceinaccountsreceivablewill
resultintaxableamountsof$30,000in2014and$20,000in2015.Thecompanyhastaxableincomeof
$350,000in2013andisexpectedtohavetaxableincomeineachofthefollowing2years.Itsenactedtax
rateis34%forallyears.Thisisthecompany'sfirstyearofoperations.Theoperatingcycleofthebusiness

is2years.
Instructions
(a)
Preparethejournalentrytorecordincometaxexpense,deferredincometaxes,andincometaxespayable
for2013.
(b)
Indicatehowdeferredincometaxeswillbereportedonthebalancesheetattheendof2013.
E123.
(NOLCarrybackandCarryforward,ValuationAccountversusNoValuationAccount)
478
SpamelaHamdersonInc.reportsthefollowingpretaxincome(loss)forbothfinancialreportingpurposes
andtaxpurposes.(Assumethecarrybackprovisionisusedforanetoperatingloss.)
YearPretaxIncome(Loss)TaxRate
2012
$120,000
34%
2013
90,000
34%
2014
(280,000)
38%
2015
220,000
38%
Thetaxrateslistedwereallenactedbythebeginningof2012.
Instructions
(a)
Preparethejournalentriesfortheyears20122015torecordincometaxexpense(benefit)andincometaxes
payable(refundable)andthetaxeffectsofthelosscarrybackandcarryforward,assumingthatattheendof
2014thebenefitsofthelosscarryforwardarejudgedmorelikelythannottoberealizedinthefuture.
(b)
Usingtheassumptionin(a),preparetheincometaxsectionofthe2014incomestatementbeginningwith
thelineOperatinglossbeforeincometaxes.
(c)
Preparethejournalentriesfor2014and2015,assumingthatbasedontheweightofavailableevidence,itis
morelikelythannotthatonefourthofthebenefitsofthelosscarryforwardwillnotberealized.
(d)
Usingtheassumptionin(c),preparetheincometaxsectionofthe2014incomestatementbeginningwith
thelineOperatinglossbeforeincometaxes.
E124.
(NOLCarrybackandCarryforward,ValuationAccountNeeded)
478
BeilmanInc.reportsthefollowingpretaxincome(loss)forbothbookandtaxpurposes.(Assumethe
carrybackprovisionisusedwherepossibleforanetoperatingloss.)

YearPretaxIncome(Loss)TaxRate
2012
2013

$120,000
90,000

40%
40%

2014

(280,000)

45%

2015

120,000

45%

Thetaxrateslistedwereallenactedbythebeginningof2012.
Instructions
(a)
Preparethejournalentriesforyears20122015torecordincometaxexpense(benefit)andincometaxes
payable(refundable),andthetaxeffectsofthelosscarrybackandlosscarryforward,assumingthatbased
ontheweightofavailableevidence,itismorelikelythannotthatonehalfofthebenefitsoftheloss
carryforwardwillnotberealized.
(b)
Preparetheincometaxsectionofthe2014incomestatementbeginningwiththelineOperatinglossbefore
incometaxes.
(c)
Preparetheincometaxsectionofthe2015incomestatementbeginningwiththelineIncomebefore
incometaxes.
E125.
(NOLCarrybackandCarryforward,ValuationAccountNeeded)
478
Meyerreportedthefollowingpretaxfinancialincome(loss)fortheyears20122016.
2012 $240,000
2013 350,000
2014 120,000
2015(570,000)
2016 180,000
Pretaxfinancialincome(loss)andtaxableincome(loss)werethesameforallyearsinvolved.Theenacted
taxratewas34%for2012and2013,and40%for20142016.Assumethecarrybackprovisionisusedfirst
fornetoperatinglosses.
Instructions
(a)
Preparethejournalentriesfortheyears20142016torecordincometaxexpense,incometaxespayable
(refundable),andthetaxeffectsofthelosscarrybackandlosscarryforward,assumingthatbasedonthe
weightofavailableevidence,itismorelikelythannotthatonefifthofthebenefitsofthelosscarryforward
willnotberealized.
(b)

Preparetheincometaxsectionofthe2015incomestatementbeginningwiththelineIncome(loss)before
incometaxes.
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