Question

For both GAAP and tax purposes, Raymond Incorporated reported the following pre-tax income (loss) for each of the years: Year Pre-tax income Tax Rate 2018 $180,000 30% 2019 120,000 30% 2020 (400,000) 40% 2021 80,000 40% Required: Prepare all the necessary journal entries for each year 2018-2021 to record income tax expense (benefit) and income tax payable (refundable), and the tax effects of the loss carry forward.

(Assume that no valuation allowance is required) Additional Notes Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes (ASU 2015-17) , provides that all deferred income taxes be classified as non-current on the Consolidated Balance Sheet. The prior requirement was to classify most deferred tax assets and liabilities based on the classification of the underlying asset or liability. Due to the Tax Cuts and Jobs Act of 2017, Net Operating Losses (NOL) may only be carried forward indefinitely and are limited to 80% of taxable income for the year to which is is carried. (A valuation allowance could still be needed).

Answer 1

Date	Account titles and explanation	Debit	Credit
2018	Income tax expense	54000
	Current tax liability (180000*30%)		54000
2019	Income tax expense	36000
	Current tax liability (120000*30%)		36000
2020	Income tax refund receivable (54000+36000)	90000
	Deferred tax asset (400000-180000-120000)*40%	40000
	Income tax benefit		130000
2021	Income tax expense	32000
	Deferred tax asset (80000*40%)		32000