Meyer reported the following pretax financial income (loss) for the years 2020–2022.

2020........................$120,000
2021........................(150,000)
2022..........................180,000

Pretax financial income (loss) and taxable income (loss) were the same for all years involved. The enacted tax rate was 20% for 2020–2022.

Instructions

a. Prepare the journal entries for the years 2020–2022 to record income tax expense, income taxes payable, and the tax effects of the loss carryforward, assuming that based on the weight of available evidence, it is more likely than not that one-fifth of the benefits of the loss carryforward will not be realized.

b. Prepare the income tax section of the 2021 income statement beginning with the line “Income (loss) before income taxes.”