Brockwood Incorporated reports the following pretax incomes

Brockwood Incorporated reports the following pre-tax incomes (losses) for both financial reporting purposes and tax purposes: $126,000 in 2015; $94,000 in 2016; $(297,000) in 2017; and $217,000 in 2018. The tax rates were 25% for 15 and 16 and in 2017 and 2018 the rate was 30%. The tax rates were all enacted by the beginning of 2015. Brockwood reports under the ASPE future/deferred income taxes method. Assume Brockwood uses a valuation allowance to account for deferred tax assets and assume that it is likely that 25% of the carryforward benefits will not be realized. Prepare the 2017 and 218 journal entries.

Solution

Date Description Debit Credit 2015 Income Tax Expense 31500 Income Tax Payable 31500 2016 Income Tax Expense 23500 Income Tax Payable 23500 2017 Income Tax Refund Receivable 55000 Deferred Tax Asset 22275 Benefit Due to Loss Carryback 55000 Benefit Due to Loss Carryforward 22275 2018 Income Tax Expense 65100 Income Tax Payable 42825 Deferred Tax Asset 22275