In 2022, its first year of operations, Genius Corp. had a $700,000 net operating loss when the

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In 2022, its first year of operations, Genius Corp. had a $700,000 net operating loss when the tax rate was 30%. There are no differences between book (GAAP) income and taxable income. In 2022, the management of Genius Corp. determined that it was more likely than not that it would not realize the loss carryforward in the near future because the company had been in operations for only one year. In 2023, Genius had $300,000 taxable income and the tax rate remained 30%. Genius operates in a jurisdiction that does not limit carryforwards.


Required

a. What are the journal entries in 2022 to record the tax loss carryforward?

b. What journal entries should Genius make in 2023 to record the current and deferred income taxes and to recognize the loss carryforward?

c. Assume that in 2022, management believes that the maximum amount of taxable income available for realization of the NOL carryforward is $400,000. Therefore, $300,000 of the NOL carryforward is expected to remain unrealized in the future. What journal entries are required to record the 2022 and 2023 tax provisions?

d. Based on your answer to part (c), prepare the footnote in dollars and percentages to reconcile the federal tax rate to the firm’s effective (actual) income tax rate for each year presented.

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Intermediate Accounting

ISBN: 9780136946694

3rd Edition

Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella

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