carryback and carryforward 460171

(NOL Carryback and Carryforward, Valuation Account versus No Valuation Account)

Sondgeroth Inc. reports the following pretax income (loss) for both financial reporting purposes and tax purposes. (Assume the carryback provision is used for a net operating loss.)

Year Pretax Income (Loss) Tax Rate
2009 $110,000 34%
2010 90,000 34%
2011 (260,000) 38%
2012 220,000 38%

The tax rates listed were all enacted by the beginning of 2009.

(a) Prepare the journal entries for the years 2009-2012 to record income tax expense (benefit) and income tax payable (refundable) and the tax effects of the loss carryback and carryforward, assuming that at the end of 2011 the benefits of the loss carryforward are judged more likely than not to be realized in the future. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

(b) Using the assumption in (a), prepare the income tax section of the 2011 income statement beginning with the line “Operating loss before income taxes.” (For negative numbers use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).)

(c) Prepare the journal entries for 2011 and 2012, assuming that based on the weight of available evidence, it is more likely than not that one-fourth of the benefits of the loss carryforward will not be realized. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

(d) Using the assumption in (c), prepare the income tax section of the 2011 income statement beginning with the line “Operating loss before income taxes.” (For negative numbers use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).)