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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Operating Loss Baxter Company began operations in 2015 and was profitable through 2018, during which time the tax rate was 30%. At the end of 2019, the tax rate was changed to 21% and, Baxter reported a pretax operating loss of $150,000 for both financial reporting and income taxes. In 2020, Baxter reported pretax operating income of $200,000.

Required:

  1. 1. Prepare Baxter’s income tax journal entry at the end of 2019.
  2. 2. Prepare the lower portion of Baxter’s 2019 income statement.
  3. 3. Prepare Baxter’s income tax journal entry at the end of 2020.
  4. 4. Prepare the lower portion of Baxter’s 2020 income statement.

1.

To determine

Prepare journal to record the entry for income tax of Company B at the end of 2019.

Explanation

Net Operating loss carryback: Carry back of net operating losses (NOLs) can help provide cash infusion for business taxpayers by offsetting net income in previous years, resulting in a tax refund.

Prepare journal to record the entry for income tax of Company B at the end of 2019:

DateAccounts title and explanationPost Ref.

Debit

($)

Credit

($)

2019    
December 31Deferred Tax Asset 31,500 
     Income Tax Benefit From Operating Loss Carry Forward   31,500
 (To record deferred tax as...

2.

To determine

Prepare the lower portion of Company B’s income statement for 2019.

3.

To determine

Prepare journal to record the entry for income tax of Company B at the end of 2020.

4.

To determine

Prepare the lower portion of Company B’s income statement for 2020.

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