Question

Smith Corporation started doing business in 2013. The following table summarizes the company’s taxable income (loss) over the 2013–2025 period and the statutory tax rate effective in each year:


Because Smith had no permanent or temporary differences during this period, its pre-tax financial reporting income was identical to its taxable income in each year. During the 2022–2025 period, Smith expected the current and future tax rates to be 35%. When possible, the company took advantage of the loss carryback provision of the tax law. When recording the tax benefits of the loss carryforward provision, management believed it was more likely than not that the tax benefits would be fully realized.

Required:
1. Provide journal entries to record income tax expense for the years 2017, 2018, 2023, 2024, and 2025.
2. In answering this requirement, make the following assumptions. At December 31, 2023 and 2024, Smith management believed it was more likely than not that only 40% of the tax benefits would be realized through a loss carryforward. However, at December 31, 2025, the company revised its expectation, believing that it was more likely than not that 100% of the tax benefits would be fully realized through a loss carryforward. Provide journal entries to record income tax expense for the years 2023, 2024, and 2025. Also show how to report the deferred tax asset as of the end of 2023, 2024, and2025.


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  • CreatedSeptember 10, 2014
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