Refer to the information for Riley Inc in E18 22 In E
Refer to the information for Riley Inc. in E18-22.
In E Riley Inc. reports the following pre-tax incomes (losses) for both financial reporting purposes and tax purposes:
The tax rates listed were all enacted by the beginning of 2009. Riley reports under the PE GAAP future income taxes method.
(a) Assume that Riley Inc. uses a valuation allowance to account for future tax assets, and also that it is more likely than not that 25% of the carryforward benefits will not be realized. Prepare the journal entries for 2011 and 2012.
(b) Based on your entries in (a), prepare the income tax section of the 2011 and 2012 income statements, beginning with the line “Income (loss) before income taxes.”
(c) Indicate how the future tax asset account will be reported on the December 31, 2011 and 2012 balance sheets.
(d) Assume that on June 30, 2012, the enacted tax rates changed for 2012. Should management record any adjustment to the accounts? If yes, which accounts will be involved and when should the adjustment be recorded?
(e) Repeat part (c) assuming Riley Inc. follows IFRS.
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