Plastic Industries Inc. follows IFRS and reported the following taxable incomes/losses and tax rates for the first

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Question:

Plastic Industries Inc. follows IFRS and reported the following taxable incomes/losses and tax rates for the first five years ended December 31:

General Information

2016: Taxable income (loss) = $50,000 Tax rate = 25%

2017: Taxable income (loss) = (400,000) Tax rate = 40%

2018: Taxable income (loss) = $100,000 Tax rate = 34%

2019: Taxable income (loss) = $230,000 Tax rate = 34%

2020: Taxable income (loss) = $620,000 Tax rate = 42%

Plastic Industries Inc. had decided to always first carryback losses in any given year before carrying them forward.

All tax rate changes were enacted as of the beginning of the year and these rates were not known until the year of change.

Required:

1) Prepare the journal entry/entries on December 31, 2017 to record only the loss carryback and/or loss carryforward for the loss in 2017. Assume there are no uncertainties about the realization of the net loss reported on December 31, 2017 and that it was more likely than not for it to generate profits in the years following any loss.

2) For the loss of 2017 that is carried forward, prepare the related journal entry/entries required to be made in 2018, 2019 and 2020.

3) Now assume that it was expected in 2017 that only 60% of the losses determined as per assumptions in (1) above, could be used within the carryforward period. Prepare the journal entry required to be made on December 31, 2017 to record this situation.

4) For this question, ignore the information on the amount of taxable loss given in the problem for 2017. Instead, now assume that Plastic Industries Inc. decided that it was possible that all of the losses would be used within the carryforward period and that in 2017 they correctly set up an asset of $408,000 to recognize this loss carry forward after carrying back the maximum loss possible to 2016. Also assume the 2018 tax rate was known in 2017. How much was the taxable loss in 2017?