Question

3. The Thomas Corporation, a U.S. company, has had no permanent or temporary differences since it began operations. Information regarding taxable income and taxes paid is as follows: YEAR Taxable income Tax Rate (Loss) 1 $60,000 40% 2 $100,000 40% 3 $80,000 35% 4 $160,000 35% 5 ($400,000) 30% The tax rate enacted for Year 6 and subsequent years is 25%. REQUIRED: Prepare the income tax journal entries for Thomas Corporation for years 1-5. 4. Now assume that it is probable that the entire net operating loss carryforward will not be realized in future years. Prepare the journal entry(ies) necessary at the end of Year 5.

Answer 1

Entry : Profit and Loss a/c Dr
to Income Tax Expense


Year 1 Profit and Loss a/c Dr 24000

   to Income tax expense 24000

Year 2 Proit and loss A/c Dr 40000  

to Income tax expense 40000

Year 3 Profit and loss a/c Dr     29750

to Income tax expense 29750

Year 4 Profit and loss a/c Dr 56000

to Income tax expense 56000

Year 5 Profit and loss a/c Dr 120000

to Income tax expense 120000

From the below formula we can find income tax journal entries. Entry : Profit and Loss alc Dr to Income tax expense Year 1 : 40% of 60,000 = 24,000 Year 2 : 40% of 1,00,000 = 40,000 Year 3 : 35% of 80,000 = 29,750 Year 4 : 35% of 1,60,000 = 56,000 Year 5 : 30% of 400,000 = 120,000 please RATE it! Also comment if any doubts !:) thank you!