Question

the tax rate is 25% not 21%

SUPPLEMENTAL PROBLEM 19-2 Meyer reported the following pretax financial income (loss) for the years 2019-2022: 2019 $350,000 2020 120,000 2021 (570,000) 2022 180,000 Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate is 21% for all years. REQUIRED: (1) Prepare journal entries for 2021 and 2022 to record the current portion and the deferred portion of income taxes, assuming that based on the weight of available evidence, it is more likely than not that one-fifth of the benefits of the loss carryforward will not be realized. (2) Prepare the income tax section of the 2021 income statement beginning with the line “Income (loss before income taxes."

Answer 1

(1) Journal entries to record the Current portion and deferred portion of income taxes.

Year	Account titles and explanation	Debit	Credit
2021	Income Tax Refund Receivable (120,000*25%)	30,000
	Deferred tax Asset 25%(570000-120000)	112,500
	Benefit due to loss carryback		30,000
	Benefit due to loss carry forward		112,500
	(To record DTA and IT expense)
	Benefit due to loss carry forward (112,500/5)	22,500
	Allowance to reduce DTA to expected realizable value		22,500
	(to record 1/5th benefit not realized)
2022	IT Expense	180,000
	DTA		112,500
	IT Payable 25% of 180000-(570000-120000)		67,500
	(To record income tax expense)
	Allowance to reduce DTA to expected realizable value	22500
	Benefit due to loss carry forward		22500

(2) Income Statement

Particulars	$
Income(loss) before Income tax	(570,000)
IT benefit
Benefit due to loss carry back 30,000
Benefit due to loss carry forward. (112500-22500)=90000	120000
net loss	(450000)