Smith Inc reported a loss in 2014 of 590000 The company repo

Smith Inc reported a loss in 2014 of $590,000. The company reported taxable income of $116,000 in 2012 and $229,000 in 2013 it has no permanent or temporary differences and is 38% what is the necessary journal entry for 2014? Smith reported taxable income or $261,000 in 2015 what ts the necessary journal entry for 2015? What is the necessary journal entry for 20147 (Record debits first, then credts, Exclude explanations from any journal entries) Account December 31, 2014 What is the necessary jounal entry for 2015 Account December 31, 2015 Choose from any list or enter any number in the input fields and then continue to the next question

Solution

In the given case, in the year 2014, the company has a loss. This loss can be carried forward and set off against any future taxable profits of the company. Hence in 2014 this creates a deferred tax asset for the company.

The entry shall be:-

Deferred tax asset account Dr. (590,000*38%). $224,200

To deferred tax charge. $224,200

For the year 2015:- The profits earned by the company during the year will be set off against carried forward losses of the company. Hence the deferred tax asset will be utilised. The following entry will be passed:-

Deferred tax charge Dr. (261,000*38%) $99,180

To Deferred tax asset. $99,180