Nueve Ltd. had the following pre-tax earnings and losses:

Year	Pre-tax Earnings (Loss)	Tax rate
20x3	$330,000	34%
20x4	$165,000	34%
20x5	$540,000	34%
20x6	$660,000	36%
20x7	($3,330,000)	36%
20x8	$375,000	36%
20x9	$915,000	40%

The tax rates are those effective for the year indicated. The rates were enacted the year in which they became effective. Taxable income (loss) was equal to accounting earnings (loss) in each year.

(1) Prepare the entry to record income tax expense for 20x7. At the end of 20x7, management estimates it is probable Nueve will utilize only $225,000 of the loss carry forward.

(2) Prepare the entry to record income tax expense for 20x8 and 20x9. At the end of 20x8, management estimates it is probable Nueve will utilize the entire loss carry forward, not just the $225,000.

Answer rating: 100% (QA)

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