Question

The pretax financial income (or loss) figures for Bonita Company are as follows. 2012 2013 2014 2015 2016 2017 2018 $164,000 275,000 86,000 (164,000) (390,000) 113,000 98,000 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. Prepare the journal entries for the years 2014 to 2018 to record income tax expense and the effects of the net operating loss carrybacks and carryforwards assuming Bonita Company uses the carryback provision. All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Account Titles and Explanation Debit Credit 2014 (To record income tax expense.)

Answer 1

Date	Description	Debit	Credit
2014	Income Tax Expenses ($86,000 x 40%)	$34,400
	Income Tax Payable		$34,400
2015	Income Tax Refund Receivable	$73,800
	Benefit Due to Loss Carryback		$73,800
	2012 tax = $164,000 x 45% = $73,800
	2015 loss $164,000 x 40% =$-65,600 can recovered from 2012 tax.
2016	Income Tax Refund Receivable	$34,400
	Benefit Due to Loss Carryback		$34,400
	2016 loss covered by 2014 profit
2016	Deferred Tax assets	$121,600
	Benefit Due to Loss Carryforward		$121,600
	($390,000-86,000)x 40%
2017	Income tax Expenses	$45,200
	Deferred Tax assets		$45,200
	($113,000 x 40%)
2018	Income tax Expenses	$39,200
	Deferred Tax assets		$39,200
	($98,000 x 40%)