Question

Sage Inc. reported the following pretax income (loss) and related tax rates during the years 2013-2019. Pretax Income (loss) Tax Rate 2013 $38,600 30 % 2014 23,900 30 % 2015 48,900 30 % 2016 73,600 2017 (196,900) 45% 2018 74,800 2019 98,500 40 % Pretax financial income (loss) and taxable income (loss) were the same for all years since Sage began business. The tax rates from 2016-2019 were enacted in 2016. Prepare the journal entries for the years 2017-2019 to record income taxes payable (refundable), income tax expense (benefit), and the tax effects of the loss carryback and carryforward. Assume that Sage elects the carryback provision where possible and expects to realize the benefits of any loss carryforward in the year that immediately follows the loss year. (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.) Date Account Titles and Explanation Debit Credit 2017 (To record carryback.)

Answer 1

Answer-Journal Entries in the books of Sage Inc.

Date	Account Title and Explanation	Debit	Credit
2017	Income tax refund receivable ($48,900*30%)+($73,600*40%)	44,110
	Benefit due to loss carryback		44,110
	(To record loss carryback)
2017	Deferred tax asset ($196,900-$48,900-$73,600)*40%	29,760
	Benefit due to loss carryback		29,760
	(To record the loss carryforward)
2018	Income tax expenses ($74,800*40%)	29,920
	Deferred tax asset		29,760
	Income tax payable		160
	(To record the income tax expenses)
2019	Income tax expenses ($98,500*35%)	34,475
	Income tax payable		34,475
	(To record the income tax expenses)

Sage Inc.

Income Statement (Partial)

For the year ended December 31, 2017

Operating loss before income taxes		$196,900
Income tax benefit:-
Benefit due to loss carryback	$44,110
Benefit due to loss carryforward	$29,760
		$73,870
Net Income/ (loss)		($123,030)

Sage Inc.

Income Statement (Partial)

For the year ended December 31, 2018

Operating Income before income taxes		$74,800
Income tax expenses:-
Current	$160
Deferred	$29,760
		$29,920
Net Income/ (loss)		$44,880