Question

Froblem 1. Garrison Designs, Inc., a corporation organized on January 1, 2008, reported the following incomes (losses) for the ten-year period, 2008-2017: Year Income (Loss) Income Tax Rate 2008 $ 16,000 50% 2009 (40,000) 50% 2010 16,000 48% 2011 24,000 48% 2012 (32,000) 45% 2013 16,000 42% 2014 32,000 42% 2015 64,000 34% 2016 80,000 34% 2017 (16,000) 30% Instructions (1) Applying the carryback provisions in the tax law, compute the net amount of taxes paid (amounts paid less refunds) for the ten-year period ending December 31, 2017 (2) Make journal entries to record income tax expense for 2015, 2016, and 2017. (3) Make journal entries to record income tax expense for 2017, assuming that Garrison chooses NOT to apply loss carryback in 2017 in anticipation of higher tax rates in the future, and it is more likely than not that 40% of the loss carry-forward will not be realized.

Answer 1

2008 16,000 2009 40,000 2012 32,000 2011 24,000 8,000 8,000 2015 64,000 1 PARTICULARS TAXABLE INCOME NOL BALANCE AT THE START OF THE YEAR CURRENT YEAR PROFIT ADJUSTED OUT OF CARRIED FORWARD NOL CURRENT YEAR LOSS ADJUSTED OUT OF PROFIT OF 2016 80,000 2010 16,000 24,000 16,000 2014 32,000 8.000 8.000 2017 -16,000 2013 16,000 24,000 16,000 2008 16,000 8.000 2011 2014 NOL BALANCE AT THE END OF THE YEAR TAX RATE TAX PAYABLE/REFUND) 50 8,000 24.000 50 -8,000 8.000 48 - 48 7,680 24.000 8.000 45 42 -7,680 - 16.000 - - - 42343430 10,080 21,760 27,200 6 ,720 2017 2 JOURNAL ENTRY INCOME TAX EXPENSES TOINCOME TAX PAYABLE 2015 21.760 2016 27200 DR ICR 21,760 272001 LIITTI DR 6,720 INCOME TAX RECOVERABLE TO INCOME TAX BENEFIT CR 6,720 3 CURRENT YEAR LOSS (2017) LOSS TO CARRY FORWARD (60%) TO BE REALIZED DEFERED TAX TO BOOK @ 30% (.e. 2017 TAX RATE) 16000*60% -16.000 -9,600 2,880 JOURNAL ENTRY DR C DEFERRED TAX RECOVERABLE TO DEFFERED TAX BENEFIT 2,880 R 2880