Problem
The profit and loss statements of Evanoff Ltd. for the first four years of operations reflected the following pre-tax amounts:
|
|
2018
|
2019
|
2020
|
2021
|
|
Revenue
|
$240,000
|
$270,000
|
$170,000
|
$315,000
|
|
Expenses
|
205,000
|
315,000
|
155,000
|
250,000
|
|
Pre-tax income(loss)
|
$35,000
|
$(45,000)
|
$15,000
|
$65,000
|
There are no temporary differences other than those created by income tax losses. Assume an income tax rate of 30% for all four years.
Task
A. Prepare journal entries to record income tax expense for the years 2018 to 2021, assuming Evanoff's management believes in 2019 that there is a 30% probability of realizing the benefits of the carryforward prior to the expiry. Show computations.
B. Repeat requirement (a) for 2019 and 2020, assuming that management believes in 2019 that Evanoff is almost certain to realize the benefits of carryforward (and doesn't change their minds).