Star Company began operations on January 1, 2019, suffering a $287,000 loss for that year. There...
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Star Company began operations on January 1, 2019, suffering a $287,000 loss for that year. There were no permanent or reversing differences in 2019. In 2020, Star reported a pre-tax accounting loss of $115,000. This amount was after deducting a warranty expense of $60,000 with respect to that year's sales. Actual expenditures on warranties amounted to $30,000 in 2020. The income tax rate in 2019, 2020 and 2021 was 20%. In 2021, Star reported a pre-tax income of $325,000. Warranty expense for the 2021 was $80,000 and actual warranty expenditures were $60,000. k Required: a) Prepare the income tax entries for the three years on the assumption that Star's management believed, at the time that the 2019- and 2020-income statements were finalized, that the loss carry- forward would be fully utilized. (6 marks) b) Prepare the income tax entries for the three years on the assumption that Star's managemen believed, at the time that the 2019- and 2020-income statements were finalized, that it was no probable that the loss carry-forward would be utilized. (3 mark) Star Company began operations on January 1, 2019, suffering a $287,000 loss for that year. There were no permanent or reversing differences in 2019. In 2020, Star reported a pre-tax accounting loss of $115,000. This amount was after deducting a warranty expense of $60,000 with respect to that year's sales. Actual expenditures on warranties amounted to $30,000 in 2020. The income tax rate in 2019, 2020 and 2021 was 20%. In 2021, Star reported a pre-tax income of $325,000. Warranty expense for the 2021 was $80,000 and actual warranty expenditures were $60,000. k Required: a) Prepare the income tax entries for the three years on the assumption that Star's management believed, at the time that the 2019- and 2020-income statements were finalized, that the loss carry- forward would be fully utilized. (6 marks) b) Prepare the income tax entries for the three years on the assumption that Star's managemen believed, at the time that the 2019- and 2020-income statements were finalized, that it was no probable that the loss carry-forward would be utilized. (3 mark)
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Journal Entries Amounts in a Date Account Title Debit Credit Dec 31 2019 Deferred Tax Asset 57400 Be... View the full answer
Related Book For
Fundamental Managerial Accounting Concepts
ISBN: 978-1259569197
8th edition
Authors: Thomas Edmonds, Christopher Edmonds, Bor Yi Tsay, Philip Olds
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