Jayryan Company sells products in a volatile market. The company began operating in 2017 and reported (and paid taxes on) taxable income in 2017 and 2018. It has one taxable temporary difference (future taxable amount) and reconciled its taxable income to its pretax financial income for 2017 and 2018 as follows:Taxable income2017-$25,0002018-$53,000Temporary difference2017-2,5002018-4,800Pretax financial income2017-$27,5002018-$57,800In 2019, because of a downturn in the market, Jayryan reported a taxable loss of $90,000, and it was uncertain as to future profits. A temporary difference of $2,700 resulted in an $87,300 pretax operating loss for financial reporting. In 2020 and 2021, Jayryan was again profitable and reported the following items:Taxable income2020-$57,0002021-$69,000Temporary difference2020-2,3002021-2,800Pretax financial income2020-$59,3002021-$71,800The income tax rate has been 30% since 2017, and no change in the tax rate has been enacted for future years.Required:1. Prepare a schedule that shows Jayryan’s income taxes payable (or receivable) for each year, 2017 through 2021.2. Prepare a schedule that shows the deferred tax information (change in temporary difference and operating loss carryforward) for each year, 2017 through 2021.3. Prepare a schedule that shows the deferred taxes for each year, 2017 through 2021.4. Based on the schedule prepared in Requirement 3, prepare Jayryan’s income tax journal entry at the end of 2019.5. Prepare a partial income statement for 2019. Include a note for any operating loss carryforward.

Question
Asked Dec 6, 2019
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Jayryan Company sells products in a volatile market. The company began operating in 2017 and reported (and paid taxes on) taxable income in 2017 and 2018. It has one taxable temporary difference (future taxable amount) and reconciled its taxable income to its pretax financial income for 2017 and 2018 as follows:

Taxable income
2017-$25,000
2018-$53,000
Temporary difference
2017-2,500
2018-4,800
Pretax financial income
2017-$27,500
2018-$57,800

In 2019, because of a downturn in the market, Jayryan reported a taxable loss of $90,000, and it was uncertain as to future profits. A temporary difference of $2,700 resulted in an $87,300 pretax operating loss for financial reporting. In 2020 and 2021, Jayryan was again profitable and reported the following items:


Taxable income
2020-$57,000
2021-$69,000
Temporary difference
2020-2,300
2021-2,800
Pretax financial income
2020-$59,300
2021-$71,800

The income tax rate has been 30% since 2017, and no change in the tax rate has been enacted for future years.
Required:
1.
Prepare a schedule that shows Jayryan’s income taxes payable (or receivable) for each year, 2017 through 2021.
2.
Prepare a schedule that shows the deferred tax information (change in temporary difference and operating loss carryforward) for each year, 2017 through 2021.
3.
Prepare a schedule that shows the deferred taxes for each year, 2017 through 2021.
4.
Based on the schedule prepared in Requirement 3, prepare Jayryan’s income tax journal entry at the end of 2019.
5.
Prepare a partial income statement for 2019. Include a note for any operating loss carryforward.

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Expert Answer

Step 1

1.

Prepare a schedule that shows Jayryan’s income taxes payable (or receivable) for each year, 2017 through 2021.

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Taxable Pretax Taxable Income(Loss) (Receivables) Income taxes Year Financial Income(Loss) Temporary Difference |(1) (2) (3) = (1) – (2) 2017 $27,500 $2,500 $7,500 (1) $25,000 2018 $57,800 $4,800 $53,000 $15,900 (1) 2019 ($87,300) $0 (2) ($90,000) $2,700 $0 (3) 2020 $59,300 $2,300 $57,000 2021 $71,800 $2,800 $69,000 $10,800 (4)

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Step 2

Working note:

 

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Working note 1: For 2017 and 2018, the income taxes payable is determined by the formula Taxable income x 30% (tax rate). Working note 2: In the year 2019, the operating loss of $90,000 is carried forward to offset future taxable income. Working note 3: In the year 2020, $57,000 of the operating loss carry forward of $90,000 is used to offset the taxable income. Thus, there are no income taxes payable. Thus, the operating loss of $33,000 is carried forward. Working note 4: In the year 2021, the taxable amount of $69,000 is partially offset by $33,000 that was remaining from the operating loss carry forward. Thus, income taxes payable is $10,800($36, 000 x 0.30).

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Step 3

2.

Prepare a schedule that shows the deferred tax information (change in temporary differenc...

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Carry forward Operating loss (ending) Beginning + Addition Year balance loss + $2,500 2017 $0 $2,500 2018 $2,500 + $4,800 $7,300 2019 $7,300 |($12,000) (5) + $2,700 $10,000 2020 $10,000 + |$2,300 |($5,000) (6) $12,300 2021 $12,300 + $2,800 = $15,100

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